The Mumbai Income Tax Appellate Tribunal (ITAT) has upheld the addition of unsecured loans under Section 68 of the Income Tax Act. The Tribunal concluded that these loans were mere accommodation entries used to bring in unaccounted money, and the repayments were simply returns of those entries, confirming the tax department’s stance.
Understanding Section 68 of the Income Tax Act
Section 68 of the Income Tax Act serves as a safeguard to ensure transparency in the income declarations of individuals and entities. It mandates that any unexplained cash credits found in the books of accounts must be accounted for by the taxpayer. If the taxpayer cannot provide satisfactory explanations or evidence for such credits, they will be treated as unexplained income and subject to taxation.
Case Overview
In this particular case, the assessee, J.K. Global, had obtained unsecured loans amounting to:
- ₹25 lakh from Ryan International,
- ₹5 lakh from Casper Enterprises, and
- ₹20 lakh from Duke Business Pvt Ltd.
The Income Tax Department, following an investigation by the Director General of Income Tax (Investigation), Mumbai, found that these loans were accommodation entries—fake transactions made to evade taxes. The investigation uncovered that Pravin Kumar Jain, through a network of paper companies, was providing these bogus unsecured loans and the assessee was a beneficiary of these accommodation entries.
Key Findings from the Tribunal
The ITAT bench, comprising Shri Narendra Kumar Billaiya (Accountant Member) and Shri Sunil Kumar Singh(Judicial Member), noted that the unsecured loans taken during the financial years were unexplained under Section 68 of the Income Tax Act. Further, it was established that the companies providing these loans—Ryan International, Casper Enterprises, and Duke Business Pvt Ltd—were involved in providing accommodation entries, further confirming the tax addition.
From the judgment:
“It has been established that the impugned loans were nothing but accommodation entries and the repayment is also nothing but the return of accommodation entries. Therefore, the money brought in the guise of unsecured loans is unaccounted income of the assessee.”
The Tribunal dismissed the assessee’s argument that the loans had been repaid, stating that the repayments were merely returns of the fake loans.
Statement of Pravin Kumar Jain
The investigation into Pravin Kumar Jain revealed that his network of companies was engaged in providing accommodation entries, including bogus unsecured loans. In a sworn statement under Section 132(4) of the Income Tax Act, Jain admitted that his companies were merely paper entities with no genuine business activity. The companies mentioned—Ryan International, Casper Enterprises Pvt Ltd, and Duke Business Pvt Ltd—were part of this web of fake entities, used to evade taxes by providing fictitious loans and share applications.
Relevant Excerpt from the ITAT Ruling:
According to the ITAT, the Director General of Income Tax’s (Investigation) findings showed that the unsecured loans were non-genuine transactions, designed solely to launder money:
“In hundreds of cases, Pravin Kumar Jain has provided accommodation entries for unsecured loans, bogus share application money, etc., without carrying out any real business. These were dummy or paper companies.”
The Tribunal further observed that the assessee’s contention—that the loan repayments should be considered for set-off—did not hold any merit. Since the loans were considered bogus, the repayments were simply returns of the fictitious accommodation entries.
Conclusion: ITAT Upholds Tax Department’s Decision
The Tribunal upheld the addition of the unsecured loans as unaccounted money under Section 68, dismissing the assessee’s appeal. The Tribunal also confirmed that interest paid on these loans was unexplained and added to the taxable income. The decision emphasizes the importance of transparency in financial dealings and the serious consequences of using bogus loans to evade taxes.
Counsel for Appellant/ Assessee: Haridas Bhat
Counsel for Respondent/ Revenue: R. R. Makwana
Case Title: J. K. Global versus ITO
Case Number: I.T.A. Nos. 3260, 3259 & 3258/Mum/2023
