ITAT Finds No Unexplained Credit After Loan Repayment Made to Lender’s Creditors
In a recent ruling, the Income Tax Appellate Tribunal (ITAT) Mumbai, ruled in favour of an assessee, saying that there was no unexplained credit as the repayment was made directly to the creditors of the lender, and the assessee furnished the payment details.
The assessee company, Y P Steel Exim Private Limited, had filed its return of income for AY 2018-19 declaring an income of Rs. 17,30,910. The case was selected for scrutiny after receiving information that the assessee had allegedly received an accommodation entry from Shree Nakoda Vitta (I) Pvt. The AO found a transaction of Rs 74,38,180, Ltd. At first, the assessee denied any transaction with the said company. However, it was later submitted that the loan was received through a broker, Keval Shah.
The repayment of the loan was allegedly made to various parties. However, the repayment transaction did not appear in the bank statement. Therefore, the AO treated the entire amount as unexplained credit under Section 68 and taxed it under Section 115BBE of the Income Tax Act.
The assessee, being dissatisfied with the order of the AO, filed an appeal before the CIT(A), where the assessee submitted that the transaction was arranged through a broker and that repayments were made directly to other creditors of Shree Nakoda Vitta (I) Pvt. Ltd. However, the assessee’s appeal was rejected by the CIT(A). Therefore, the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT) Mumbai.
The Tribunal observed that the assessee initially denied the transaction with Shree Nakoda Vitta (I) Pvt. Ltd, but later accepted the transaction and submitted the required details. The ITAT also noted that the assessee had immediately repaid the loan to four different parties, and their bank accounts were also furnished by the assessee. The Tribunal acknowledged that the initial reply of the assessee created doubt, but later the assessee had accepted their mistake, and the loans were arranged through a broker and repaid to the creditors of the lender.
As the AO did not conduct further verification, the Tribunal found no reason for treating the credit as unexplained. Further, the tribunal also did not find any justification for the addition of the entire credit, which was already reported to the creditors of the lender. The Tribunal cited several judgements, which also held that if a significant part of the credit has been repaid and the AO accepted such entry, no addition can be sustained. Based on these findings, the ITAT allowed the appeal of the assessee.
Case Citation: Y P Steel Exim Private Limited Vs DCIT (ITAT Mumbai); ITA NO. 4306/MUM/2025; 10/11/2025; 2018-19
