Common business premise not enough to label loan creditor as accommodation entry provider

Merely because loan creditor existed in the premises wherein accommodation entry providers had their offices, AO cannot come to the conclusion that loan creditor was also an accommodation entry provider.

In a recent judgment, ITAT Delhi has held that merely because loan creditor was existed in the premises wherein other companies were existed who were providing accommodation entries, the Assessing Officer cannot come to the conclusion that loan creditor was an accommodation entry provider.

ABCAUS Case Law Citation:
5062 (2026) (03) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition u/s 68 of the Income Tax Act, 1961 (the Act) on account of alleged accommodation entries taken in the guise of share capital.

A search and seizure action u/s 132 of the Act took place at various business and residential premises of a Business Group including premise of the appellant assessee. The case of the assessee was selected for scrutiny under CASS.

The Assessing Officer observed that during search and post-search proceedings details relating to companies giving accommodation entries of share application money, share premium, share capital and unsecured loans came to light.

The Assessing Officer observed that appellant assessee had received unsecured loans from one loan creditor to the extent of Rs.3.5 crores. The assessee was asked to submit relevant evidence to prove the unsecured loan and to prove the identity genuineness and creditworthiness of the transaction. Further assessee was asked to provide full name, address, PAN, amount of loan/deposits taken and copy of bank statement of the creditors from which the payment was received. Further, asked why the above said amounts are not be added u/s 68 of the Act.

Further, as per the information received from the Investigation Wing, it was noticed that the said loan creditor was one of the jamakharchi Companies used in providing accommodation entries by its director. It was further informed that loan creditor was not physically existing at its address. Further, information was submitted wherein statements of said director was recorded during the previous inquiries/surveys/searches etc., in which he admitted to the fact that he was in the business of providing accommodation entries through various papers/jamakharchi Companies.

The Assessing Officer relied on the above investigation report from the Investigation Wing and further, observed that the address given in the return of income of the loan creditor was also used by other paper/jamakharchi Companies controlled by director. Those Companies were admitted to have been registered solely for the purpose of providing accommodation entries and did not have any other business.

The above informations were confronted to the assessee and asked to produce Director/key person who is involved in managing the affairs of the loan creditor along with all relevant details. In compliance the assessee furnished ledger account, bank statement, ITR acknowledgment and annual financial statements of the lender. Data of the Companies downloaded from the MCA website was also furnished.

The Assessing Officer observed that none of the Directors were produced for examination by the assessee during the assessment proceedings even though specific requirement for the same was communicated to the assessee. The Assessing Officer heavily relied on the comprehensive information received from Investigation Wing. He came to the conclusion that loan creditor  was one of jamakharchi Companies and accordingly, he came to the conclusion that assessee has received accommodation entries from the above said Company.

In the light of the above observations, the AO proceeded to treat the unsecured loans received by the assessee as unexplained credit and added the same u/s 68 of the Act.

The Tribunal observed that the Assessing Officer had completed the assessment heavily relying on the statement recorded and findings of Investigation Wing, other than that he had not carried on any independent inquiry by himself.

The Tribunal observed that nowhere in the report submitted by the Investigation Wing contained the details of the loan creditor as providing accommodation entries. There was no specific finding on involvement of loan creditor as accommodation providers. Merely because loan creditor was existed in the premises wherein other companies were existed who were providing accommodation entries, the Assessing Officer cannot come to the conclusion that loan creditor was an accommodation entry provider.

Accordingly, the Tribunal deleted the additions sustained by the CIT(A)

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