ITAT Quashes ₹84 Lakh Addition Made u/s 69A, accepts Assessee’s Explanation on Cheque Discounting for Working Capital [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal ( ITAT ) granted relief to assessee, Nirmaladevi Shreegopal Kanodia by deleting an addition of ₹84,00,669 made under Section 69A of the Income Tax Act, 1961. The Tribunal accepted the assessee’s contention that the impugned transactions were genuine short-term financing arrangements facilitated through post-dated cheques, and not unexplained cash credits or accommodation entries.

The case pertains to Assessment Years 2013-14 to 2015-16, during which the Assessing Officer had reopened assessments on the basis of information received through the Income Tax Department’s Insight Portal. According to the department, the assessee had allegedly entered into suspicious financial transactions with known accommodation entry operators, including entities linked to one Sanjay Tibrewal, who was under investigation following a search operation in 2019.

Income Tax 2025: Will It Save You Money or Cost You More? Find Out Inside! - Click Here

As per the assessment order, deposits worth ₹84 lakh were traced to entities such as Radhe Corporation, Krishna Enterprises, and Shankar Corporation, firms that, during investigation, were revealed to be paper concerns operated in the name of employees with no financial standing, allegedly under the control of Sanjay Tibrewal. Based on the findings, the Assessing Officer invoked Section 69A and made the addition, concluding that the assessee had failed to explain the nature and source of the credits.

However, the assessee denied any connection with Tibrewal or his network and maintained that the transactions were regular short-term financings used for her textile business. The assessee contended that in order to maintain liquidity in her business, trading in unstitched ladies' dress material, she often resorted to cheque discounting mechanisms, issuing post-dated bearer cheques in exchange for immediate working capital. These were not sham transactions, she asserted, but a commonly accepted financial practice in her line of trade.

Income Tax 2025: Will It Save You Money or Cost You More? Find Out Inside! - Click Here

The assessee further submitted extensive documentary evidence including confirmation letters from the financing parties, PAN details, ITR acknowledgements, and bank statements, to demonstrate the identity, creditworthiness, and genuineness of the transactions.

While the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition in part, deleting only ₹8.62 lakh pertaining to a different entity, he confirmed the rest of the addition under Section 69A on the ground that the assessee had not satisfactorily explained the nature of the credits received in her account from Radhe Corporation and others.

The Tribunal noted that the assessee had provided substantial evidence to substantiate her version of events. The Bench observed that merely because some of the cheque-discounting entities were also used by accommodation entry operators in other cases does not automatically render all transactions with them as bogus.

Income Tax 2025: Will It Save You Money or Cost You More? Find Out Inside! - Click Here

It was observed that the total credits in the bank account were ₹1.83 crores. The assessee has submitted due evidences to explain that the transactions in the bank statement reflect post-dated cheques issued and cross bearer cheques received against them. The cheques received were deposited on the same day.

The Bench comprising of Dr. B.R.R. Kumar (Vice President),  Siddhartha Nautiyal (Judicial Member) emphasized that the three key ingredients, identity, creditworthiness, and genuineness had been established by the assessee. It held that the Revenue failed to rebut this with corroborate evidence and thus the additions could not be sustained. As a result, the Tribunal allowed the appeals of the assessee and deleted the entire addition of ₹84,00,669 under Section 69A.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates