Genuine Loan Transactions Cannot Be Treated as Bogus: ITAT Deletes Rs. 2.07 Crore Addition 

The Income Tax Department has filed the present appeal in the Income Tax Appellate Tribunal (ITAT), Delhi, against a company named Mundra Agencies Private Limited, challenging an order dated February 20, 2025, passed by the CIT(A)/NFAC Delhi. The case pertains to the Assessment Year 2016-17.

The impugned order had deleted an addition of Rs. 2.07 crore made to the assessee’s income by the Assessing Officer (AO) under Section 68 of the Income Tax Act. The additions were primarily deleted on the grounds that the assessee’s company, i.e., Mundra Agencies Private Limited, had received accommodation entries amounting to Rs. 2.07 crore in the form of bogus loans from certain companies (such as Gomati Consultants, Karda Traders, M3M Traders, and CVH Sea) during the year in consideration.

The AO reopened the assessment on account of the information received during the search operation conducted over certain entry operators. The assessee was among those who were alleged to have received bogus loan entries from some entities, including M3M Traders, Karda Traders, Gomati Consultants, and Ambarnuj Finance & Investment Ltd. The AO treated these loan receipts as unexplained cash credits and made an addition of the same to the assessee’s income, reasoning that the lenders were paper companies and lacked creditworthiness.

The aggrieved assessee filed an appeal before the NFAC. When the NFAC deeply examined the bank statements, ledger accounts, and repayment details furnished by the assessee. It was observed that all the loans in question were received and repaid through proper banking channels, along with interest, and tax was deducted at source (TDS) on the interest payments. By citing an earlier Gujarat High Court judgment based on a similar issue, the NFAC ruled that once loans are fully repaid through proper banking channels and supported by all relevant documentary proofs, the transaction cannot be treated as unexplained credit, and hence, the addition made by the AO was unjustified. As a result, NFAC deleted the addition of Rs. 2.07 crore made to the assessee’s income.

The tax department argued that merely relying on the fact that repayment of loans was made through proper banking channels does not prove their genuineness and that the lenders were dummy entities. Therefore, the income tax department approached the ITAT Delhi.

The tribunal analysed the facts of the case; it found the findings of NFAC justified and saw no valid reason to interfere with its order. Accordingly, the dimissed the appeal filed by the revenue, and the deletion of the addition under Section 68 was upheld.