Failure to Establish Three Essential Ingredients: ITAT upholds Income Tax Addition u/s 68 on Accommodation Entries [Read Order]

The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) comprising Dr. S. Seethalakshmi (Judicial Member) and Shri Gagan Goyal (Accountant Member) have allowed Revenue’s appeals against an Assessee, sustaining additions under Section 68 of the Income Tax Act, 1961 on account of unexplained unsecured loans treated as accommodation entries.

Bagaria Trade Impex, engaged in wholesale trading of kirana items and commodity trading, had filed returns for AYs 2013-14 and 2014-15. The Assessing Officer (AO) made additions of over Rs. 5 crore under Section 68 of the Income Tax Act on account of unsecured loans received from multiple entities alleged to be shell concerns.

The Commissioner of Income Tax (Appeals) [CIT(A), NFAC] quashed the reassessment proceedings and deleted the additions primarily on jurisdictional and technical grounds, without adjudicating merits.

Stay Ahead with Expert Tax Insights – 2025 Edition

Aggrieved, the Income Tax Department filed appeals before the ITAT in ITA Nos. 696, 697 & 705/JPR/2025.

The Revenue argued that credible information from the investigation wing indicated that the assessee had routed accommodation entries through entities managed by the “Jain brothers,” known entry operators. It was submitted that CIT(A) wrongly ignored the substantive evidence of bogus transactions and erred in relying only on jurisdictional issues.

On the other hand, the assessee’s counsel contended that all loans were repaid within the same financial year, leaving no credit balance, and therefore Section 68 of the Income Tax Act could not apply. Reliance was placed on various precedents, including Rohini Builders and Nimbus (India) Ltd., to argue that identity of creditors and repayment was sufficient compliance.

The Bench observed that the AO had made detailed enquiries and found categorical denials or non-compliance from several creditor parties. Creditworthiness was not established, and many entities were found to be paper concerns with negligible returned income but extending large loans.

Citing settled law, including Kale Khan Mohammad Hanif v. CIT (SC) and Roshan Di Hatti v. CIT (SC), the Tribunal reiterated that the initial onus to prove the identity, creditworthiness, and genuineness of creditors lies on the assessee. Merely proving repayment within the same year does not absolve liability under Section 68 of the Income Tax Act.

It was noted by the bench of Dr. S. Seethalakshmi, Judicial Member and Gagan Goyal, Accountant Member that, “In view of the above the present Bench do have any hesitation in holding that on merits the assessee has miserably failed to establish the essential three ingredients as prescribed in section 68 of the Act and duly discussed and confirmed by the various Hon’ble High Courts and Hon’ble Supreme Court as discussed (supra).”

It was also noted that, “As far as the finding of the Ld. CIT (A) that the assessment of the assessee should have been carried out as per the provisions of section 153C of the Income Tax Act, We have gone through the order of the Ld. CIT (A) and facts of the case alongwith order of the AO. It is observed that the finding of the Ld. CIT (A) is erroneous as the case of the assessee false within the purview of section 148 of the Income Tax Act and not in section 153C of the Act.”

On jurisdictional objections, the ITAT relied on DCIT (Exem.) v. Kalinga Institute of Industrial Technology (SC), holding that once the assessee participated in proceedings without raising objections within the statutory time, jurisdictional challenges could not be entertained.

The ITAT held that CIT(A)’s order was perverse as it ignored the Apex Court’s binding precedent. The Tribunal allowed all three Revenue appeals, upholding the AO’s additions under Sections 68 and 69C.

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