ITAT Rules, S. 68 Addition Not Justified When Alleged Bogus Loan Is Repaid
Sangeetha Prathap
The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has held that an addition under Section 68 of the Income Tax Act cannot be sustained when the alleged bogus loan has been fully repaid through proper banking channels and the Revenue has brought no adverse material to dispute the genuineness of the transaction. The Tribunal deleted the ₹50 lakh addition made against Maruti Multichem Pvt. Ltd., along with the consequential tax under Section 115BBE and interest under Sections 234A/B/C/D.
The Bench comprising T.R. Senthil Kumar (Judicial Member) and Annapurna Gupta (Accountant Member) noted that the loan in question had been received from Dishman Carbogen Amcis Ltd. (formerly Dishman Pharmaceuticals & Chemicals Ltd.) through account-payee banking channels and was subsequently repaid in full. The assessee had paid interest on the loan with proper TDS deductions, and these payments were reflected in Form 26AS and the company’s bank statements.
The assessee had filed its return of income for AY 2017–18 declaring an income of ₹1.79 crore. The case was later reopened on the allegation that the company had received “bogus loans” from Dishman Pharmaceuticals & Chemicals Ltd. During reassessment, the Assessing Officer treated the ₹50 lakh loan as unexplained cash credit under Section 68 and taxed it under Section 115BBE. The AO also declared the assessee’s return filed in response to notice under Section 148 as “invalid”, thereby justifying the reopening.
Despite detailed submissions supported by ledgers, bank records and confirmations, the National Faceless Appeal Centre (NFAC) upheld the addition.
Before the Tribunal, Senior Advocate Tushar Hemani argued that the loan was received on 11–12 August 2016 through banking channels, that interest had been regularly paid with TDS, and that the entire loan was repaid on 11 January 2019. The lender’s identity, creditworthiness and the genuineness of the transaction were never in dispute. He emphasised that no inquiry was conducted by the AO—no summons, no notice under Section 133(6), and no adverse material whatsoever. The Revenue had itself accepted the repayment in subsequent years, making it inconsistent to treat the loan as bogus in an earlier year.
The Department defended the reassessment and argued that the addition was justified. After examining the loan ledger, bank statements and confirmations, the Tribunal found that the Revenue had failed to contradict the assessee’s documentary evidence. The Tribunal observed that the AO made the addition without conducting even basic verification, such as issuing a notice under Section 133(6) to the lender. The absence of inquiry, coupled with acceptance of repayment by the Department in later years, weakened the Revenue’s position.
The Tribunal placed reliance on decisions of the Gujarat High Court holding that when the Revenue acknowledges repayment of a loan in a subsequent year, the same loan cannot be treated as bogus for the earlier year. The Bench also noted procedural lapses, including inadequate time granted in the show-cause notice and lack of opportunity for cross-examination.
Based on the undisputed repayment, the proper banking trail and the absence of any adverse evidence, the Tribunal held that the addition under Section 68 and the invocation of Section 115BBE were unsustainable.
The ITAT allowed the assessee’s appeal in full, deleting the ₹50 lakh addition under Section 68, cancelling the consequential tax under Section 115BBE, and removing the interest levied under Sections 234A/B/C/D. The Tribunal held that where a loan is genuine, documented and fully repaid, a Section 68 addition cannot be justified.
Appearance
Counsel For Petitioner: Tushar Hemani, Sr. Adv.
Counsel For Respondent: Mamta Singh, Sr. D.R.
Cause Title: Maruti Multichem Pvt. Ltd. Versus DCIT
Case No: ITA No. 1644/Ahd/2025
Coram: T.R. Senthil Kumar (Judicial Member), Annapurna Gupta (Accountant Member)
