Pharma Company’s Loan Treated as Bogus; ITAT Holds PAN, Confirmation and Banking Trail Do Not Prove Genuine Creditworthiness

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has upheld an addition of Rs.10 lakh under Section 68 of the Income Tax Act, 1961, holding that mere submission of PAN, bank statements and loan confirmations is insufficient when the assessee fails to establish the creditworthiness of the lender and the genuineness of the transaction. The Tribunal also sustained a further addition of Rs.30,000 towards alleged commission paid for obtaining the accommodation entry. The appeal was dismissed by Accountant Member Ramit Kochar.

The case arose after the Revenue received information during a search conducted on the Galaxy Group and alleged entry operators Deepak Agarwal and Himanshu Verma. According to the investigation, the two operators controlled a large network of shell entities allegedly engaged in providing accommodation entries in the form of unsecured loans, share capital and other transactions. Based on this material, the Assessing Officer reopened the assessment of Radicool Pharmaceuticals Private Limited and examined a loan of Rs.10 lakh received from M/s LVS Financial Services Pvt. Ltd. during FY 2019-20.

The Assessing Officer treated the loan as an unexplained cash credit under Section 68 on the ground that LVS Financial Services Pvt. Ltd. was one of the entities identified during the investigation as a shell company used for routing accommodation entries. A further addition of Rs.30,000, being 3% of the loan amount, was made under Section 69C towards alleged commission paid for arranging the entry.

Before the Tribunal, the assessee contended that the loan had been received through banking channels and supported by confirmation, PAN details and bank statements of the lender. It was further argued that the addition was based on third-party statements, copies of which were not supplied to the assessee and whose cross-examination was also not permitted. The assessee additionally pointed out that the loan had been repaid through banking channels in July 2025.

The Tribunal, however, noted that the repayment was made only after completion of the reassessment proceedings and after the addition had already been made by the Assessing Officer.

“It is only when the additions were made by the AO, then the assessee came forward to repay the loan recently in 2025 to create an evidence to protect itself against substantive additions.”

The Tribunal observed that the assessee failed to produce any loan agreement, details of repayment terms, security arrangements, interest obligations or other commercial conditions ordinarily associated with a loan transaction from a finance company. It further noted that no interest had been paid on the loan for more than five years and no evidence was produced to demonstrate the genuine lending activity or financial strength of the lender.

“Merely filing of the PAN, bank statement and loan confirmations are not sufficient.”

The Bench held that the Revenue had carried out extensive investigations showing that the lender was part of a network of entities with negligible business operations, poor financial strength and questionable existence at their recorded addresses. In such circumstances, the burden had shifted back to the assessee to rebut the findings and establish the lender’s creditworthiness and the genuineness of the transaction, which it failed to do.

The Tribunal further held that even without relying upon the statements recorded during the search and post-search proceedings, the material on record was sufficient to sustain the additions. Accordingly, the addition of ₹10 lakh under Section 68 and the consequential addition of Rs.30,000 under Section 69C were upheld, and the assessee’s appeal was dismissed.

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