ITAT Upholds Section 68 Addition for Alleged Accommodation Entry, Allows Revenue Appeal

In a case related to alleged accommodation entries received by Shagun Marcom Private Limited for the Assessment Year 2020-21, the Income Tax Appellate Tribunal (ITAT), Delhi Bench has given a ruling in favour of the Income Tax Department.

The Revenue’s appeal was delayed by 15 days. However, ITAT accepted the explanation of delay given by the department observing that such delay was genuine and unintentional. The delay was condoned and the appeal was admitted for hearing on merit.

The Income Tax department had reopened the assessment following a search operation carried out in November 2021 on members of the Galaxy Group and certain individuals, including Deepak Agarwal and Himanshu Verma. During the search, authorities allegedly found evidence of several shell companies providing accommodation entries to various beneficiaries. One of the beneficiaries was identified as Shagun Marcom.

The department alleged that Shagun Marcom had received an accommodation entry of Rs.31,00,000 from Shyamali Security and Consultant Pvt. Ltd., a company allegedly controlled by Deepak Agarwal. The assessee claimed that the amount was a genuine loan. However, the AO held that the company failed to establish the genuineness of the transaction and the creditworthiness of the lender. Consequently, the amount was added to the company’s income under Section 68 of the Income Tax Act.

The Commissioner of Income Tax (Appeals) had earlier deleted the addition by relying on a Tribunal decision in the case of Real Innerspring Technologies Pvt. Ltd. The department challenged this relief before the ITAT.

The Revenue has relied on the recent ruling of Delhi ITAT in the case of ACIT v. Bhawani Finvest Pvt. Ltd. wherein similar facts of alleged accommodation entries from the same entry operators were considered. In that case, the Tribunal upheld the additions made by the assessing officer.

After discussing the facts, the ITAT observed that the case relied upon by the CIT(A) was distinguishable and the facts of Bhawani Finvest were almost similar to the facts of Shagun Marcom. The Tribunal observed that the Assessing Officer had examined in detail the statements of the alleged entry operators and their associates and brought on record how a network of shell companies was used to give accommodation entries.

The Tribunal further observed that repayment of such loans does not prove their genuineness if the original transaction itself is found to be an accommodation entry. The Bench leaned on its earlier decision in Bhawani Finvest and a decision of a Mumbai Tribunal in J.K. Global to hold that the relief granted by the CIT(A) was not justified.

Thus, the ITAT set aside the order of the CIT(A) and restored the addition made by the Assessing Officer under Section 68 of the Income Tax Act. The Revenue succeeded in its appeal.