Repayment of Rs. 1.85 Cr Loan in Two Days alone Does not Prove its Paper Entry: Delhi HC Upholds Deletion of S. 68 Addition [Read Order]

In a recent ruling, the Delhi High Court held that repayment of Rs. 1.85 crore loan within two days alone does not prove it was a paper entry, and it refused to interfere with the Income Tax Appellate Tribunal (ITAT) order deleting the Section 68 addition of the Income Tax Act, 1961.

The Income Tax Department filed an appeal under Section 260A against the ITAT order dated 04.06.2025. The ITAT had allowed Sperry Plast Ltd’s appeal and deleted additions relating to loans taken from two companies Bhargabi Vinimav Pvt. Ltd. and Pioneer Dealtrade Pvt. Ltd.

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The ITAT recorded that during remand, the Assessing Officer issued notices to both creditors, the notices were served and both replied. For Bhargabi Vinimav Pvt. Ltd., the AO made addition saying its reserves were low and income was meagre.

But ITAT observed that creditworthiness is not only based on current year income. It also recorded that the assessee took Rs. 2 crore loan, repaid Rs. 1.85 crore within two days and paid remaining Rs. 15 lakh within one month.

For Pioneer Dealtrade Pvt. Ltd., the assessee gave confirmation, ITR, audited financials and bank statement. ITAT observed that the AO did not doubt identity and creditworthiness, and the creditor also confirmed the transaction. ITAT deleted the addition.

Before the High Court, the Department argued that quick repayment within two days shows it was not genuine. It also argued that as per Investigation Wing Kolkata report, Pioneer Dealtrade was an entry provider.

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The Division Bench of Justice Dinesh Mehta and Justice Vinod Kumar observed that the matter is mainly factual and based on evidence already considered by the Tribunal. The court observed that repayment in two days cannot by itself prove the loan was fake.

The court also observed that no interest for such short loan is not unusual, because sometimes loans are given due to relations or friendship. The court also pointed out that proper enquiry like relationship between parties or money lender licence was missing.

The court dismissed the Department’s appeal and upheld deletion of the Section 68 addition.

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