AO adds ₹15 Lakh for Alleged Fake Loan given Based on Third-Party Information: ITAT deletes Addition Citing Genuine Transaction [Read Order]

The Surat Bench of Income Tax Appellate Tribunal ( ITAT ) deleted Rs. 15 Lakh addition alleged accommodation entries in the form of loans based on third-party information citing that the transaction was genuine.

The assessee, Yashika Jewels Private Limited, is a private company engaged in diamond trading. The assessee filed a return declaring an income of Rs. 2,24,140, scrutinized and assessed at Rs. 3,04,290.

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A search conducted at Rajesh Lifespace Group led to a statement by Rajesh Patel that unsecured loans, including a Rs. 15 lakh loan from the assessee were used to launder cash.

The assessee’s assessment was reopened under Section 147 of the Income Tax Act, 1961 based on information received from the Investigation Wing about Rajesh Lifespace Group's involvement in accommodation entries.

The assessing officer ( AO ) alleged that the assessee provided accommodation entries of Rs. 15 lakhs in the form of a loan. In response, the assessee contended that the loan to Rajesh Estate & Nirman Pvt. Ltd. was genuine, made through banking channels, and was repaid in the next financial year. Interest on the loan had been accounted for, and TDS was deducted.

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However, based on Rajesh Patel’s statement, the AO added 15 Lakhs to the assessee’s total income. On appeal, the Commissioner of Income Tax [ CIT(A) ] confirmed the addition without considering the assessee’s submission.

Aggrieved by the CIT(A) order, the assessee appealed before the Surat Bench of ITAT arguing that the reopening of the assessment was based on borrowed satisfaction from third-party information, which is not permissible under the law.

The assessee’s counsel argued that the loan was provided legitimately and repaid through banking channels and the AO failed to establish any nexus between the loan and escapement of income.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The assessee’s counsel submitted documentary evidence, including bank statements and confirmations from Rajesh Estate & Nirman Pvt. Ltd., but the AO did not give these due considerations.

On the contrary, the revenue counsel argued that the loan given by the assessee was an accommodation entry used by Rajesh Lifespace Group to convert unaccounted cash into a legitimate loan. Rajesh Patel’s statement under Section 132(4) provided prima facie evidence of the accommodation entry. Thus, reopening the assessment was justified.

The two-member bench comprising Pawan Singh ( Judicial Member ) and Bijayananda Pruseth ( Accountant Member ) noted that the assessee provided sufficient evidence, including bank statements and confirmation letters, demonstrating the loan was repaid through banking channels before the search on Rajesh Lifespace.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The tribunal found that the AO failed to give proper consideration to the evidence provided by the assessee and did not investigate further. The tribunal noted that the loan was repaid before the search action and the loan's legitimacy was further corroborated by the interest received and the deduction of TDS.

Therefore, the tribunal deleted the addition made by the AO, finding the transaction was genuine and allowing the assessee’s appeal.

To Read the full text of the Order CLICK HERE

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