Deputy Commissioner Of Income Tax, Central Circle-20 vs Seema Realcon Private Limited

1)

Whether the Ld. CIT(A) has failed to appreciate that the entire modus operandi of accommodation entry providers is based on deception, layering, and manipulation of banking channels, thereby creating an artificial appearance of genuine financial transactions while actually routing unaccounted cash

2)

Whether the Ld. CIT(A) has erred in ignoring the statement of Shri Himanshu Verma, an identified entry operator as per ITAT findings, recorded under section 132(4), wherein he categorically admitted that Shri Deepak Agrawal was managing and controlling M/s SW Consultancy Pvt. Ltd., the very entity which provided the impugned accommodation entry to the assessee

3)

Whether the Ld. CIT(A) has incorrectly concluded the genuineness of the unsecured loan despite the financial analysis clearly establishing that the lender lacked creditworthiness, financial capacity, and even a properly verifiable identity, thereby failing to satisfy the essential conditions under section 68

4)

Whether the Ld. CIT(A) has overlooked the fact that the assessee did not furnish any reasonable explanation, business purpose, OR commercial necessity for obtaining such a large unsecured loan, which is a crucial indicator of the non-genuine nature of the transaction

5)

Whether the Ld. CIT(A) has erred in holding the transaction as genuine despite overwhelming evidence indicating that the so-called unsecured loan was merely a sham arrangement designed to introduce unaccounted cash into the assessees books through an accommodation entry provider

6)

(a) The Order of the Ld. CIT(A) is erroneous and not tenable in law and on facts. (b) The appellant craves to add, alter OR amend any/all of the grounds of appeal before OR during the course of the hearing of the appeal.

“4.1

Ground no. 9: I have carefully perused the assessment order passed by the AO, the written submissions filed by the appellant, as well as the paper book placed on record. This appeal is directed against the assessment order passed u/s 147 of the Act, wherein an addition of Rs.85,00,000 was made under section 68 of the Act on account of unsecured loans received by the appellant during the year from the NBFC company M/s S.W. Consultant Private Limited. In this case, a search and seizure operation was conducted on Galaxy Group of entities on 17.11.2021. While making impugned addition, the AO in the assessment order has discussed various materials found during the course of search, statement of various persons recorded during the course of search and financial analysis of various companies owned and managed by Sh. Himanshu Verma (alleged entry provider). The AO has contended that during the year appellants have taken loan from shell company owned and managed by Sh. Deepak Aggarwal, Sh. Himanshu Verma & Others.

4.2

The appellant submitted detailed submissions and stated that the appellant has taken unsecured loan from NBFC company through proper banking channel and duly repaid the same within 2 months through proper banking channel. The transaction is supported by documentary evidence such as bank statement, loan agreement, ledger confirmation. In written submission appellant has challenged the said addition by raising various legal as well as factual grounds. The facts contended by the appellant are summarised as under:

a. The appellant challenges the initiation of reassessment proceedings u/s 148 of the Act on the ground that the notice was issued by the Jurisdictional Assessing Officer instead of the Faceless Assessment Centre, as mandated under the Faceless Assessment Scheme, 2022.

b. The appellant challenges the initiation of reassessment proceedings u/s 148 of the Act on the ground that the assessment was initiated on the basis of borrowed satisfaction, relying on unverified third-party data, and carried out in a mechanical manner without conducting any independent enquiry or application of mind

c. The appellant submitted that the addition was made merely on the basis of various third-party statements, which are not related to the instant matter, and without providing any copy of such statements, Information, or documents that were relied upon for making the addition.

d. The appellant submitted that the addition was made after rejecting the appellant's request for cross-examination to verify the allegations levied by the AO.

e. The appellant submitted that the addition was made by placing reliance on various judicial pronouncements, the facts of which are not similar to the instant matter.

f. The appellant submitted that the addition was made based on the alleged current affairs of the lender, rather than the status of the lender during the relevant assessment year, which pertains to a period about nine years ago, and that the appellant cannot be held responsible for the lender's alleged current affairs after nine years of the transaction The appellant submitted that the addition of the unsecured loan amounting to Rs. 85,00,000/- taken during the year was made despite the fact that the loan was received through proper banking channels and duly repaid within two months through proper banking channels. The appellant emphasised that the lender, an NBFC company, M/s S.W. Consultants Private Limited, had established identity, creditworthiness, and genuineness. Copies of the PAN card, ITR, audited financial statements, loan agreement, and ledger confirmation issued by the lender were duly submitted; however, the A0 ignored all these documentary evidences and, without providing any cogent basis or establishing any cash trail, made the addition of the entire amount.

4.3

In this case, the main contention of the appellant is that the entire reassessment proceedings were initiated solely on the basis of a ledger statement of a company extracted from accounting software. Such a ledger, by itself, does not establish that any income has escaped assessment. The addition has been made in respect of loans taken by the appellant during the year, which were received through proper banking channels and duly repaid through proper banking channels within the same year. Merely placing reliance on a third-party statement-which neither mentions the appellant nor has any nexus whatsoever with the appellant-cannot form the basis of reassessment. The Ld. A0 further rejected the appellant's request for cross-examination and proceeded to make the addition by relying on unconnected judicial pronouncements, which are not applicable to the facts of the present case.

4.4

Further, during the course of assessment proceedings, the AO conducted certain inquiries and reported that M/s SW Consultants Private Limited does not exist at its registered office. These inquiries have no relevance to the transaction in question, which was entered into by the appellant nearly nine years ago. The present status of the company cannot be a basis to doubt or discredit the transaction entered into at that time. The appellant cannot be held liable for the current status of M/s SW Consultants Private Limited.

4.5

Further, the appellant has contended that as per the assessment order, the AO relied upon the statements of Shri Deepak Agarwal and Shri Himanshu Verma. Their statements do not mention the name of the appellant or M/s SW Consultants Private Limited, and accordingly their statements are of no relevance. The AO has also relied on the statements of Shri Pushp Kumar and Smt. Swati Mittal, alleged to be auditors of companies controlled by Shri Deepak Agarwal and Shri Himanshu Verma. However, Shri Pushp and Smt. Swati are not auditors of M/s SW Consultants Private Limited and such statements do not mention the appellant or M/s SW Consultants Private Limited. Accordingly, these statements also cannot be relied upon. Further, the A0 has also relied upon the statement of Shri Virendra Kumar, alleged to be a dummy director on behalf of Shri Deepak Agarwal. However, Shri Virendra Kumar is not a director of M/s SW Consultants Private Limited, and accordingly, his statement also cannot be relied upon. All these statements are of third parties not related with the appellant or M/s SW Consultants Private Limited and do not even mention the name of the appellant or M/s SW Consultants Private Limited. Hence, all these statements are irrelevant in the present matter.

4.6

Further, in support of its contention, the appellant has relied upon various case law, details of same are as under: The Hon’ble ITAT Delhi in the matter ofI TO vs Rmp Holdings Private Limited, ITA No.5089/DEL/2024 held that

"Para 8 Considered the rival submissions and material placed on record. On careful consideration, it is fact on record that assessee has received unsecured loan from Rabik Exports Pvt. Ltd. only through banking channel. In support of that, assessee has submitted confirmation letters and Balance Sheet and further we observed that assessee has returned the same within three months from the receipt of the above unsecured loan. Since the transactions were only routed through banking channels and assessee has submitted relevant documents as required by the AO. It is also fact on record that the AO has verified the existence of the company as per the address available on ROC records and as per the Inspector's physical report and also jurisdictional AO has confirmed that Rabik Exports Pvt. Ltd. has not filed return of income for Assessment Years 2017-18 & 2018-19, however there is no mention about the return of income filed by them for earlier AYs i.e. 2015-16 & 2016-17. From the record, it is clear that even the Director of the assessee company has confirmed the transaction, receipt of unsecured loan and repayment of the same. Merely because the AO could not trace the company as per the address available on ROC records and non-filing of return of income for the assessment year under consideration, the transactions carried on by the assessee through banking channel cannot be nullified. It is a fact on record that the transactions are taken place through the banking channel and the same was repaid within three months also through banking channel.

Para 9 We observed that on the similar facts on record, coordinate Bench in the case of Signature Global India Pvt. Ltd. (supra) held as under:

"18.

With regard to ground no.ii(a), we observed that the Assessing Officer observed that the assessee has taken unsecured loan from 9 parties and assessee has submitted copies of ITR acknowledgement, confirmation of the loan creditors and copy of bank statement of all the loan creditors and with regard to Basera Realtech Private Limited submitted a copy of the Hon'ble High Court order. The Assessing Officer has made the addition after analyzing loan creditors. He came to the conclusion based on the declaration of meager income in the return of Income and observed how can they lend huge amount to the assessee as unsecuredloans, therefore, he raised doubt of the creditworthiness of these parties. In appellate proceedings, Id. CIT (A) considered the detailed submissions of the assessee and he deleted the addition with the observation that the assessee has submitted all the relevant details/documents in respect of securing unsecured loans from all the nine parties. After considering the details filed on record, he observed that Assessing Officer has not pointed out any discrepancy in the abovesaid documents and not made further enquiries. Further he observed that based on the balance sheet of these lender companies, he observed that the status of own funds/total funds available with these lender companies are much higher than the amount lend by them and he negated the findings of the Assessing Officer on the basis of lending the money merely on the basis of earning of income. He relied on the decision of coordinate Bench in the case of Addl.CIT vs. Prayag Polytech Pvt. Ltd. (supra). ITO vs. Computer Home Information Plus Pvt. Ltd. (supra) and the decision of Hon'ble Delhi High Court in the case of Pr.CIT vs. Goodview Trading Pvt. Ltd. (supra) and came to the conclusion that income alone is not the criteria for making the loan and also negated the findings of the Assessing Officer that the loan was given immediately after it was received by them and cannot be the ground for making addition u/s 68 of the Act. Finally, he deleted the addition by observing that the assessee has taken loans from these companies for short duration and almost all the loans were repaid during the year itself and only some small amount is outstanding as at the year end and that too is mainly on account of interest.

Based on the above finding, Id. CIT (A) came to the conclusion that assessee has proved the conditions imposed u/s 68 of the Act that assessee has found identity creditworthiness and genuineness of the transactions. Further, he observed that the Assessing Officer has merely rejected the submissions of the assessee on the basis of doubt without bringing any material to discredit the document or information on record. Further he observed that the provisions of section 62 of the Act as existed at that point out time there is no requirement of proving the source of source in the case of loan transactions. Accordingly, he deleted the addition made by the Assessing Officer.

Para 10 The facts in the present case are exactly similar to the above and assessee has submitted all the relevant information to prove the identity, creditworthiness and genuineness of the transactions and it is also fact on record that assessee has repaid the unsecured loan within three months and all the transactions were routed through banking channel. Therefore, respectfully following the aforesaid decision, we do not find any reason to disturb the findings of the ld. CIT (A) and accordingly, the grounds taken by the Revenue are dismissed.

The Hon'ble Gujarat High Court in a recent judgement in case of PCIT Vs Merrygold Gems (P).Ltd (2024) 164 Taxmann 764 (Gujarat) dated 11.06.2024 held that

where amount of loan received by the assessee was returned within the same fInancial year, addition u/s 68 of the Act cannot be made. In the said case, The Tribunal dismissed the appeal of the revenue observing that the assessee had refunded the entire deposits either within a day or in a week or in a maximum period of five months. Thus no amount was left at the end of the financial year. It was also matter on record that the repayment was not doubted by the Assessing officer. Against the order of Tribunal, department filed appeal before Hon'ble Gujarat High Court. The Hon'ble Gujarat High Court in their decision observed as under:

"In the instant case, what is evident is that the amount of loan received by the assessee was returned within the same financial year and in most of the cases within 30 days. The said repayment was also verified from the ledger account and the bank statement. [Para 91"

The Hon'ble ITAT Delhi in the matter of Real Innerspring Technologies Pvt. Ltd vs ACIT, Central 29, Delhi, ITA No.647/DEL/2023 held that:

12.

From the above, it is clear that the assessee has repaid the loan even before the assessment was reopened. 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 utilised the loan for the purpose of business and repaid the same. Merely because some operator has managed the affairs and 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. Therefore, In this case, the assessee has submitted all the documents in support of the transaction before the AO and he has merely rejected the same on the basis of information available with him as the same on the basis of suspicion. Therefore, we are inclined to allow the grounds raised by the assessee. 13. In the result, appeal filed by the assessee is allowed.

The Hon'ble ITAT Jaipur in the matter of ITO vs Kedia Builders and Colonizers Pvt. Ltd, TTA No.872 to 875 & 901/JP/2024 held that:

49.

Here it is also a matter of fact that the assessee appellant has repaid back within a very short duration all the questioned loan. When loan stands repaid no addition under Section 68 can be made and is held by the judgment of Hon'ble Gujarat High Court in case of Rohini Builders [2002]256 ITR 360 (Gujarat), wherein the court held that "The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques."

The Hon'ble ITAT Delhi in the matter of Rajhans Infratech Pvt. Ltd vs ACIT, Circle-21(2) Delhi, ITA No.2153/DEL/2019 held that:

13.

So on the facts, aforesaid discussion distinguishes the judgments relied by Ld. CIT(A). On the contrary, the judgment of Hon'ble Gujarat High Court in the case of the CIT VS. Rohini builders; 256 ITR 360, as relied by the Ld. AR, is relevant, where Hon'ble High Court has held:

"The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques."

The Hon'ble ITAT Delhi in the matter of ITO vs Mansarover Exim Pvt. Ltd, ITA No.1275/DEL/20024 held that:

22.

In view of above facts and the circumstances of the case, we are of the considered view that the decision of the Ld. CIT(A) deleting the additions made is based on the appreciation of fact that all the relevant documentary evidences were produced by the Assessee to establish the identity and creditworthiness of the lender companies and genuineness of the transactions. Further based on the legal precedents and the fact that the loan was received and repaid through banking channel, ld. CIT(A) had deleted the additions under consideration. We further observed that Hon'ble Jurisdictional High Court in various cases hos dealt the issue where assessee has discharged its burden by filing all the necessary evidences to prove the loans as genuine, provisions of section 68 cannot be invoked. Further Hon'ble Gujarat High Court in the case of PCIT Vs. Ojas Tarmake Pvt. Ltd. (supra) has held that where major portion of the credit has been repaid and also looking to the facts that in the instant case the A0 had accepted the debit entries as genuine, the Hon'ble Court on the said facts ultimately affirmed the decision of the Tribunal in deleting the addition. Further the Hon'ble Gujarat High Court reaffirmed this view in the case of PCIT Vs. Merrygold Gems Pvt. Ltd. Similar view is also expressed by the Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Karaj Singh [2011] 15 taxmann.com 70 (P&H).

4.7

On careful perusal of the fact of the case and judgment relied upon, it is found that the receipts of the loan amounting to Rs.85,00,000/- and repayment of such loan is clearly reflected from the copy of bank statements. The appellant has submitted confirmation and loan agreement during the course of Assessment Proceeding. Apart from this, the identity, status and creditworthiness of lender i.e. from M/s SW Consultants Private Limited is justified with the help of PAN, ITR, Audited Financial Statements, Bank Statement, Loan Agreement and ledger confirmation to prove ingredients required u/s 68 of the Act. The identity and tax status of the lender is not in doubt. Hence, it can be said that not only has the identity and creditworthiness of the lender been substantiated through financial, tax returns and confirmations, but also the transaction have been conclusively proved by way of repayment of loans through banking channels. The AO has not doubted repayment of loan and has not brought any credible evidence as discussed in detailed in aforementioned para, to establish that the loan was accommodation entry. The addition is based on general observations without any direct linkage to the appellant's transaction.”

“5.

The ld. AO accordingly proceeded to make the impugned addition of Rs.2 Crores under section 68 qua loan received from M/s Sarvottam Securities Pvt. Ltd. . Additionally, the ld. AO also made addition of Rs.15,06,164/- on account of interest paid on the unsecured loan of Rs.2 Crores and addition of Rs.6 lakhs under section 69C of the Act on the presumption of commission @3% of Rs.2 Crores. The ld. CIT(A) through his order dated 11.06.2025 deleted the impugned additions while inter alia concurring with the argument of the appellant that the assessee has repaid the part loan during the current Financial Year, loan was received through banking channels, etc. He also held that the addition was made on general observations and that the AO had not brought on record evidence to establish the factum of accommodation entry. The addition of interest and commission were also deleted on the premise that main addition of Rs.2 crores has been deleted.

6.

Before us, the ld. Counsel for the assessee reiterated the arguments taken before the ld. CIT(A). It was vehemently argued that as the loan was repaid during the year through banking channel , it was impermissible to add the same u/s 68 of the Act.

7.

The ld. CIT- DR, Shri Rajesh Kumar, vehemently argued in favour of the order of the AO. It was urged that the factum of indulgence of assessee with accommodation entry providers is clearly brought out by the ld. AO in his order. On the issue of repayment of loan during the year under consideration, the ld. DR placed reliance upon the decision of Hon'ble ITAT Mumbai in its order dated 05.09.2024 in ITA No.3258 to 3260/Mum/2023 in the case or J.K. Global. It was stated that it has been held in the impugned order that repayment of loan would not take away the blame of accommodation entry.

8.

We have heard rival submission in the light of material available on records. We have noted that the ld. AO has vividly demonstrated in his assessment order extracted hereinabove that the assessee was having connections with accommodation entry providers. We have also noted that the ld. AO has extensively brought out in the assessment order while analyzing statements of entry providers Shri Himanshu Verma and Shri Deepak Agarwal and their employees Ms. Sonia, etc that a web of shell company was created to route accommodation entries and that the assessee was beneficiary of one such company. On the issue of justification of loan qua its repayment, we have noted that a co-ordinate Bench of the Mumbai Tribunal in the case of J.K. Global (supra) held as under:-

"..7. Considering the facts of the case in toto and in the light of the decisions of the coordinate bench (supra), we have no hesitation in confirming the addition made u/s 68 of the Act for the captioned Assessment years. The contention of the ld. counsel that the loans have been re-paid during the year under consideration therefore the set off of the same should also be given to the assessee does not hold any water as it has been established that the impugned loans were nothing but accommodation entries and the repayment is also nothing but return of accommodation entries therefore, the money which has been brought in the garb of unsecured loan is nothing but the unaccounted money of the assessee and the repayment of the same does not make any sense...."

9.

Thus, we have noted that the argument of the assessee regarding the justification of impugned loan of Rs.2 crores on account of repayment cannot be accepted. In respectful compliance to the decision of Hon'ble Mumbai Tribunal in the case of J.K Global(supra), we are of the considered view that the relief accorded by the ld CIT(A) is not based upon correct understanding of the facts of the case. We, therefore, set-aside the order of the ld. CIT(A) and confirm the addition of Rs.2 crores made by the ld. AO. Similarly, we also confirm the addition made by the AO of Rs.15,06,164/- on account of interest and of Rs.6 lakhs on account of commission. The appeal of the Revenue is therefore allowed.