ITAT Delhi on Unsecured Loans and Alleged Accommodation Entries: Key Lessons from DCIT Vs Mahavir Pulses Pvt. Ltd.

The decision of the ITAT Delhi in DCIT Vs Mahavir Pulses Pvt. Ltd. provides an important exposition on how additions under Section 68 and Section 69C should be tested when unsecured loans are alleged to be accommodation entries. The Tribunal’s ruling underscores that once the assessee substantiates the three core ingredients under Section 68 and also proves repayment of the loan with interest through banking channels, the Revenue cannot sustain additions based merely on generic investigation reports or third-party statements without a direct nexus to the specific transaction.

This order also reiterates that where the loan is found to be genuine, any corresponding addition under Section 69C on account of presumed commission for obtaining accommodation entries or alleged bogus interest cannot survive.

Background of the Appeals

The Revenue filed two appeals before the ITAT Delhi against the order of the Commissioner of Income-tax (Appeals)-29, New Delhi [“CIT(A)”] dated 22.08.2025 for:

  • Assessment Year 2016-17, and
  • Assessment Year 2019-20.

Since both appeals involved identical issues regarding unsecured loans treated as unexplained cash credits and consequential commission/interest disallowance, the Tribunal disposed them off by a consolidated order, taking the appeal for AY 2016-17 as the lead case.

Core Dispute: Treatment of Unsecured Loan as Unexplained Cash Credit

Revenue’s Stand

The Assessing Officer had reopened the assessment and framed an ex parte order under Section 147 r.w.s. Section 144 of the Income Tax Act 1961, treating unsecured loans received by Mahavir Pulses Pvt. Ltd. as unexplained cash credits under Section 68. The primary allegation was:

  • The lending company was identified by the Investigation Wing as a shell entity and accommodation entry provider.
  • Information obtained through the system and investigation reports indicated that the lender was controlled by an entry operator.
  • On this basis, the AO treated the loan as an accommodation entry representing the assessee’s own unaccounted money routed back in the guise of unsecured loans.

In addition, the AO invoked Section 69C to make an addition for presumed commission allegedly paid in cash for arranging the accommodation entry, and also treated interest claimed on the loan as bogus expenditure.

Assessee’s Defence Before CIT(A) and ITAT

The assessee contended that the loan was a genuine commercial transaction fully supported by documentation and banking trail. For the relevant year, the unsecured loan in dispute (for instance, Rs. 71,00,000/- from M/s Durgapuja Trades and Commerce Pvt. Ltd. in the CIT(A)’s discussion) was:

  • Received through account payee cheque/NEFT/RTGS;
  • Supported by:
    • Loan agreement
    • Confirmation from lender
    • PAN of the lender
    • Income-tax returns of the lender
    • Audited financial statements
    • Bank statements of the lender and the assessee
  • Fully repaid in the subsequent year through proper banking channels with interest.

The assessee also highlighted that:

  • The AO failed to identify any cash deposit trail linking the assessee with the alleged cash component in the lender’s bank account.
  • The AO substantially relied on third-party statements and general investigation reports, without affording cross-examination and without any transaction-specific material.
  • The repayment of the loan along with interest undermined the theory that it was merely a sham circular transaction.

The assessee’s authorised representative argued before the Tribunal that the CIT(A)’s order was in line with settled judicial principles and also consistent with recent ITAT Delhi decisions in:

  • Real Innerspring Technologies (P.) Ltd. v. ACIT, ITA No. 647/Del/2023, order dated 27.03.2025; and
  • Dazzling Construction Pvt. Ltd. Vs ITO Ward-7(2), New Delhi, ITA No. 3771/Del/2023.

In both those cases, the coordinate bench had held that where loans are repaid with interest through banking channels and the assessee has furnished full documentary evidence, the presumption of accommodation entries cannot rest on suspicion alone.

Detailed Findings of CIT(A) on Section 68 Addition

The CIT(A) undertook a detailed analysis of the loan addition under Section 68. For illustrative clarity, the appellate order discusses one such loan of Rs. 71,00,000/- from M/s Durgapuja Trades and Commerce Pvt. Ltd., which the AO had treated as an unexplained cash credit.

Evidence Filed by the Assessee

The CIT(A) recorded that the assessee had placed on record: