Section 68 Addition Cannot Stand on General Modus Operandi Alone: ITAT Jodhpur Deletes ₹40 Lakh Unsecured Loan Addition

Case Overview

Case Name: Ankit Agarwal Vs ITO (ITAT Jodhpur Bench)
Assessment Year: 2015-16
Court: Income Tax Appellate Tribunal, Jodhpur Bench

Background of the Case

The assessee, Ankit Agarwal, was an individual functioning as the proprietor of M/s Churu Overseas, a trading concern dealing in PVC resin. For Assessment Year 2015-16, the assessee filed his return of income declaring a total income of Rs. 3,80,740/-. The return disclosed business income of Rs. 5,28,622/-, short-term capital gain of Rs. 2,116/-, and income from other sources of Rs. 3,660/-, with the final total income arriving at Rs. 3,80,740/- after applicable deductions under Chapter VI-A.

The case took a consequential turn when the Assessing Officer (AO) received intelligence from the Joint Director of Income-tax (Investigation), Unit-1, New Delhi, vide letter bearing F. No. Jt. DIT(Inv.)/U-1/Information Sharing/2016-17/283 dated 21.03.2017. This communication alleged that during the financial year 2014-15, the assessee had availed an accommodation entry worth Rs. 40,00,000/- through entities floated and operated by Shri Anand Kumar Jain and Shri Naresh Kumar Jain, referred to collectively as the "Jain Brothers."

How the Reassessment Was Triggered

The investigative trail began with a search and seizure operation conducted under Section 132 on 17.12.2015 in the cases of the Jain Brothers. The Investigation Wing's findings alleged that the Jain Brothers ran a network of paper and dummy companies, with bank accounts operated through dummy directors and employees. These accounts were purportedly used for routing unaccounted money through cheques, demand drafts, RTGS, and NEFT transactions in exchange for cash payments from beneficiaries.

The search allegedly unearthed computers, Tally data, blank signed cheque books, share certificates, bank account opening documents, income-tax return credentials, authorisation letters, and related documents from the premises of these operators.

Upon obtaining approval from the Additional Commissioner of Income-tax, Range-Jhunjhunu, a notice under Section 148 was issued on 10.01.2018. In response, the assessee filed a return of income on 27.06.2018. Notices under Section 143(2) and Section 142(1) followed, and reasons for reopening were communicated to the assessee through an ITBA communication dated 25.10.2018.

The Transaction Under Scrutiny

The disputed credit pertained to an unsecured loan of Rs. 40,00,000/- received by M/s Churu Overseas from M/s Ambarnuj Finance and Investment Pvt. Ltd. The transaction was duly reflected in the tax audit report submitted in Form No. 3CB dated 09.09.2015, specifically in column No. 31(a) thereof. Significantly, the assessment order itself acknowledged that the loan of Rs. 40,00,000/- was not only received but also fully repaid during the same financial year.

Despite this acknowledgment, the AO treated the loan as an unexplained cash credit under Section 68 and assessed total income at Rs. 43,80,740/-. The AO relied primarily on:

  • The Investigation Wing's report detailing the Jain Brothers' alleged modus operandi
  • The statement of Ms. Surbhi Chandra, who admitted to being a non-working or employee director of M/s Ambarnuj Finance and Investment Pvt. Ltd. and stated that the Jain Brothers controlled the company's affairs
  • The statement of Shri Saurabh Aggarwal, Managing Director of M/s Sapphire Polyvinyl Pvt. Ltd., who admitted to his company having obtained accommodation entries from entities controlled by the Jain Brothers

Penalty proceedings under Section 271(1)(c) were also initiated separately.

What Evidence the Assessee Produced

Before the lower authorities and subsequently before the ITAT, the assessee placed on record a comprehensive body of documentary evidence, including:

  • Name, address, and PAN of M/s Ambarnuj Finance and Investment Pvt. Ltd.
  • Return of income acknowledgement of the lender entity
  • Account confirmation from the lender
  • Bank statement of the lender evidencing advancement of the loan through banking channels
  • Bank statement of the assessee evidencing both receipt and repayment of Rs. 40,00,000/- through regular banking channels during the same financial year
  • Assessee's own return of income acknowledgement and financial statements