Loans from Regulated NBFCs with Proven Net Worth Cannot Be Treated as Bogus Cash Credits.

The Core Dispute: Regulated NBFC vs. “Shell Company” Allegations

The Revenue’s Allegation: The Assessing Officer (AO) made additions under Section 68 (now Section 102), claiming the loans were “accommodation entries.” The AO’s suspicions were based on:

The lender being a “shell company” with dummy directors.
The lender’s email address being linked to known “entry providers.”
A perceived lack of “commercial expediency” or poor financial standing of the borrower.

The Assessee’s Defense: The taxpayer provided a “paper trail” that proved the three pillars of Section 68: Identity, Creditworthiness, and Genuineness.

Key Judicial Principles Established

The Tribunal ruled in favour of the Assessee based on several critical legal findings:

1. The Status of the Lender as an NBFC

The court held that if a lender is an NBFC registered with the RBI and listed on the BSE:

Its Identity is beyond doubt.
Advancing loans is its regular business activity.
Unless a regulatory body (like the RBI or SEBI) finds a deficiency in its conduct, the Income Tax Department cannot unilaterally term its activities as non-genuine.

2. Creditworthiness is Not Just “Revenue from Operations”

The AO argued that the lender’s revenue was insufficient to justify the loan. The court corrected this:

Creditworthiness must be judged by Net Worth (Share Capital + Reserves).
In this case, the lender had substantial reserves (over ₹69 crores) and mutual fund investments (over ₹49 crores), proving it had the “capacity” to lend.

3. Repayment as Proof of Genuineness

A major factor in favour of the assessee was that the loans were repaid in subsequent years through banking channels. The court held that the act of repayment strongly supports the genuineness of the initial transaction.

4. Irrelevance of “Dummy Directors”

The court ruled that even if some directors of the lender company were found to be “dummy” directors in other contexts, it does not invalidate a specific loan transaction if the borrower is not connected to those directors and all financial documents (ITR, Bank Statements, Confirmations) are in order.

Strategic Takeaways for 2026 Compliance

Documentation is Key: Even without a formal “Loan Agreement,” the presence of a Ledger Account, PAN, Bank Statements, and ITR of the lender is sufficient to discharge the initial onus under Section 102 (new Act).
The “Section 250(4)” Shield: In this case, the Commissioner (Appeals) used summons and independent inquiries to verify the lender. If an AO ignores your documents, request the Appellate Authority to conduct an independent inquiry to validate the lender’s existence.
Repayment Strategy: If you are under scrutiny for an unsecured loan, ensure you have a clear record of interest payments (with TDS) and, if possible, evidence of partial or full repayment.
NBFC Advantage: Borrowing from a regulated NBFC or a listed company provides a significantly higher “safety net” against Section 102 additions compared to borrowing from private limited companies with no active business.

IN THE ITAT DELHI BENCH ‘A’

Deputy Commissioner of Income-tax

ACE Infracity Developers (P.) Ltd.^*

ANUBHAV SHARMA, Judicial Member
and Manish Agarwal, Accountant Member

IT APPEAL Nos. 6894, 6967, 8184, 8437 & 8438 (Delhi) of 2025
[Assessment years 2019-20, 2020-21 & 2021-22]

APRIL 17, 2026

Rohit Kapoor and Virsain Agarwal, Advs. for the Appellant. Jitender Singh, CIT-DR for the Respondent.

ORDER

Anubhav Sharma, Judicial Member.- These appeals are preferred by the Assessee as well as the Revenue against the orders dated 28.10.2025 of the Ld. Commissioner of Income-tax (Appeals)-3, Noida (hereinafter referred to as the First Appellate Authority or ‘the ld. FAA’ for short) in appeals filed before him against the orders passed u/s 147 r.w.s. 143(3)/143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) by the DCIT, Central Circle-1, Noida (hereinafter referred to as the Ld. AO, for short). Further details of the orders of the authorities below are as under:-

ITA No. & Assessment Year	Appeal No. & Date of order of the CIT(A)	AO who passed the assessment order & Date of order	Section of the IT Act under which the AO passed the order
8184/Del/2025, 2019-20	CIT(A), Noida-3/10036/2018-19, Dated 28.10.2025	DCIT, Central Circle- 1, Noida, Dated 28.03.2024	147 r.w.s. 143(3)
8438/Del/2025, 2021-22	CIT(Appeal), Kanpur-4/10122/2020-21, Dated 28.10.2025	DCIT, Central Circle- 1, Noida, Dated 31.12.2022	143(3)
6894/Del/2025, 2019-20	CIT(A), Noida-3/10036/2018-19, Dated 28.10.2025	DCIT, Central Circle-1, Noida, Dated 28.03.2024	147 r.w.s. 143(3)
8437/Del/2025, 2020-21	CIT(A), Noida-3/10016/2018-19, Dated 25.11.2025	DCIT, Central Circle- 1, Noida, Dated 28.03.2024	147 r.w.s. 143(3)
6967/Del/2025, 2021-22	CIT(Appeal), Kanpur-4/10122/2020-21, Dated 28.10.2025	DCIT, Central Circle- 1, Noida, Dated 31.12.2022	143(3)

2. A search and seizure operation under Section 132 of the Act was conducted in the premises of ACE and Kurle Group on 28.07.2021. Another search action was conducted on ACE and Rudra Group on 04.01.2022. The assessee was one of the searched entities against whom search warrant was issued. During the impugned assessments the AO had examined the unsecured loans received by the assessee from different entities and raising specific queries and calling to establish the genuineness of the transaction, the AO was not satisfied and had made additions in regard to the lender companies. The Ld. CIT(A) had confirmed the additions in respect of the few while benefitting the assessee. Thus, the assessee and the Revenue both are in appeal.

3. On conclusion of the hearing, we find that in the appeals before us there are entities which are common to the years before us and we consider it appropriate to discuss the issues raised by both the sides referring to the disputed entities/lenders individually. The ld. DR has relied the findings of ld. AO while ld. AR as reasserted the averments as made before the ld. Authorities below.

4. The assessee had allegedly received Rs.30,00,000 unsecured loan from Sundram Consultants Pvt. Ltd. in AY 2019-20 and paid interest of Rs 5,09,580/-and Rs.4,10,753/- to Sundram Consultants Pvt. Ltd. in AY 2019-20 and 2020-21. The same were found accommodation entries and added by AO and have been sustained by the Ld.CIT(A).

4.1 On considering the rival contentions, we find that the AO has alleged Sundram Consultants Pvt. Ltd. to be a shell company with dummy directors. The AO considered the e-mail address of the company to be connected with one of the entry provider companies. The AO has alleged that there was no commercial expediency and also that the complete bank statement was not furnished.

4.2 In regard to this entity, our attention was drawn to the fact that in the return of M/s Sundram Consultants Pvt. Ltd., the official e-mail address as per the return filed was different than the one observed by the AO. Then, admittedly, the lender is an NBFC and advancing loan was part of its regular business activity and there is nothing on record or in the submissions of the Department that any of the regulatory bodies had found any deficiency in the conduct of the business.

4.3 The Ld. Counsel has drawn our attention to evidences in the paper book showing the share capital and reserve surplus of the company being over Rs.17 crores and revenue during the year was Rs.24 crores.

4.4 The attention of the Bench was also drawn to the fact that a coordinate Bench in the case of Jajoo Rashmi Refractories (P.) Ltd. v. ACIT [IT Appeal No. 733 (JP.) of 2019]/(2020) (2) TMI 424, order dated 07.02.2020, has given a finding that M/s Sundram Consultants Pvt. Ltd. is a genuine and creditworthy company. In this context, it was also pointed out before us by the Ld. Counsel that the very same entity M/s Sundram Consultants Pvt. Ltd. has been accepted as a genuine lender in the case of appellant’s sister concern M/s Bright Buildtech Pvt. Ltd. wherein unsecured loan aggregating to Rs.32 crores were advanced during AY 2019-20 and no addition of the same was made.

4.5 On the basis of the aforesaid facts and circumstances we are of the considered view that the Ld. tax authorities have adopted an unjustified approach to doubt the genuineness of the transaction. The identity of the lender being NBFC, its creditworthiness on the basis of its financials and genuineness of the transaction of a loan being taken from an NBFC were sufficiently established. We are of the considered view that reasons given by the Ld. CIT(A) for the additions in the hands of assesse, on the basis of assessment for AY 2013-14 in the hands of M/s Sundram Consultants Pvt. Ltd. far stretches the applicability of the provisions of Section 68 of the Act in the case of the assesse. When no material evidence whatsoever was found during the search conducted on two occasions merely on surmises and conjectures of questioning commercial expediency or finding some objectionable manner of running the company alleging dummy directors cannot be sufficient to sustain the addition. Thus, with regard to the loans received from M/s Sundram Consultants Pvt. Ltd., or interests, paid we consider the same deserves to be deleted.

5. In regard to the interest of Rs.1,44,484/- and Rs.1,16,464/- paid to M/s Jorehaut India Ltd. in AY 2019-20 and 2020-21, respectively which are sustained by the Ld. CIT(A), again, the allegations are that it was a shell company with dummy directors and the e-mail was associated with one of the entry providers. The AO had also alleged that complete bank statement was not furnished. Perusal of the assessment order reveals that as per the AO the said entity has filed return of income at nil.

5.1 Now, before us, the Ld. Counsel has submitted that the e-mail address relied by the AO was incorrect and the correct official e-mail address of the company was only part of the ITR. The appellant has filed all the relevant information and evidences in the form of confirmations, PAN and ITR of the lender. The absence of loan agreement from this lender which also happens to be an NBFC engaged in financing and advancing loans cannot be basis to doubt a transaction when otherwise none of the statutory authorities have found any infirmity in its functioning.

5.2 Rather, it is a case of the assessee that during the assessment years 201920 and 2020-21 no unsecured loans was raised on the said party and there was no fresh credit and this loan was repaid on 09.10.2020. The Ld. Counsel has drawn our attention to the evidences in the paper book showing this lender company filing return of income of Rs.19,17,650/- and Rs.3,34,160/- in AY 2019-20 and 2020-21, respectively. The Ld. Counsel has also drawn our attention to the evidences in the paper book showing substantial shareholders found of the company.

5.3 Thus, based on the aforesaid discussion, we are of the considered view that the infirmity pointed out by the Ld. tax authorities below were insufficient to rebut the onus discharged by the assessee to establish the genuineness of the transaction, identity and creditworthiness of the lender company especially when no incriminating material were discovered to suggest any cash component was involved in the transaction invoking Section 68 of the Act was not justified. Thus, this addition on account of interest on unsecured loan deserves to be deleted.

6. The assessee has received Rs.50 lakhs in AY 2019-20 from Sesun Marketing Pvt. Ltd. as unsecured loan and made payment of interest of Rs.4,39,570/- in AY 2019-20 and Rs.3,54,320 in AY 2020-21. These additions have been sustained by the Ld.CIT(A) and in regard to this entity again, the allegation of the AO is that it is a shell company with dummy directors. Similar allegations have been made that the e-mail id of the entry provider was associated with this company and complete bank account statement was not provided.

6.1 Now, again, this is one of the NBFCs involved in the lending business. There is no allegation of any statutory authority finding the activities to be not genuine.

6.2 It also comes up from the contentions of the Ld. Counsel that in the case of Jajoo Rashmi Refractories (P.) Ltd. (supra), the coordinate Bench has held that this is not a shell company and has the creditworthiness.

6.3 The Ld. counsel has also relied copy of assessment order in the case of this lender company for AY 2022-23 wherein there is no allegation that this is an entry provider company.

6.4 Then, we find that the assessee had provided all relevant documents like confirmation, ITR and bank statement of the lender. The bank statement for the period 01.12.2018 to 31.12.2018 is in the paper book and the same was part of the evidences before the Ld. tax authorities. It was also established that this company had a share capital and reserve surplus of over Rs.14 crores and the revenue earned during the year was Rs.27 crores. The Ld. Counsel has submitted copy of ledger account evidencing repayment of the loan on 13^th March, 2019.

6.5 In the light of the aforesaid, the discrepancies which the Ld. AO has pointed out were not sufficient to doubt the genuineness of the transaction of loan coming from an NBFC. The Ld.CIT(A) has placed reliance on the additions made in the assessment of this company for AY 2013-14. However, the principle of source of source was not applicable in the present case. Any additions in the hands of the lender, thus, become irrelevant. On the basis of the aforesaid discussion, we are of the considered view that the addition made on account of loan from Sesun Marketing Pvt. Ltd. or interest paid deserves to be deleted.

7. Manikaran Mercantile Pvt. Ltd. had given a loan of Rs.4,20,00,000/- in AY 2019-20 against which the assessee had paid an interest of Rs.10,08,394/- in AY 2019-20 and Rs.16,74,473/- in AY 2020-21 and Rs.18,13,898/- in AY 202122. These additions have been sustained by the Ld.CIT(A) for which the assessee is in appeal and, again, the allegations are that this is a shell company with dummy directors. The conclusion was based on the ITRs of the directors. The AO also questioned the commercial expediency. The financial standing of the assessee company was also questioned as it has a share capital of Rs.35 lakhs and the income returned was Rs.3,41,549/-.

7.1. Now, in regard to this lender company, we find that in the relevant years this company had a shareholder fund of over Rs.17 crores and also had a longterm loans and advances of Rs.16 crores in AY 2019-20, Rs.18 crores in AY 2020-21 and Rs.17 crores in AY 2021-22. The Ld. Counsel pointed out that in AY 2019-20, Rs.1 crore was invested in mutual funds as evidenced from notes to the bank statement.

7.2 The assessee had filed all relevant documents in the form of ledger account, PAN and bank statement. Then, in AY 2019-20 the assessee repaid Rs.1,20,00,000/- to M/s Manikaran Mercantile Pvt. Ltd. and the remaining loan was also paid and squared up as on 27.10.2023 by banking channels.

7.3 The Ld. Counsel has also pointed out that in the case of the sister concern L.M. Machinotech LLP for AYs 2019-20 and 2020-21 the loans taken were not doubted nor the creditworthiness was doubted.

7.4 We are of the considered view that the evidences filed by the assessee were sufficient to establish its creditworthiness. The revenue from operations in itself is not sufficient indicator of creditworthiness when otherwise the reserve surpluses and long-term loans and advances were available with the lender to lend the money on interest. The repayment only adds to the genuineness of the transaction. We are also of the considered view that when there is no allegation of the assessee being in any way connected with any of the dummy directors, then, on the basis of the allegation of dummy directors holding position in lender’s constitution cannot be material circumstance to doubt the transaction of loan. In the light of the aforesaid circumstances, we are of the considered view that the additions deserves to be deleted.

8. On behalf of the Department, by way of relevant grounds in the context of the entities which had given loans and were found to be genuine by the Ld.CIT(A), the contention is that the evidences were insufficient and the Ld. DR has relied the assessment orders. In regard to these entities for which the assessee was benefitted by the Ld.CIT(A), we take up the same individually to find out how far the assessee had discharged its burden.

9.1 The assessee had received a loan of Rs.3 crores from Dolf Leasing Ltd. for which interest of Rs.9,35,250/- was paid in AY 2019-20 and a loan of Rs.25 lakhs was received in AY 2021-22. In regard to this entity, admittedly, it is an NBFC assessed to tax and its functionality has not been suspected or doubted by any of the regulators.

9.2 The relevant documents like PAN, ITR, audited financial statements, confirmations and bank statements were furnished to the AO. Nothing has been found from the same to doubt the transaction.

9.3 Then, we find that ld. CIT(A) has heavily relied and an inquiry which was got conducted through investigation wing by invoking powers u/s 250(4) and based upon the evidence collected, identity of the lender was duly found established. The entire loan along with interest was repaid on 25.08.2020 before search. The NBFC is shown to have share capital and reserves of over 69 crores with investment in mutual fund of around 49.25 crores in AY: 2019-20. Thus, the findings of ld. CIT(A) to conclude that the transaction of loan in payment of interest cannot be doubted of making addition u/s 68 and 69C of the Act require no interference.

10. The assessee received Rs.17 crores in AY: 2019-20 from Sky Box Investment Ltd. with erstwhile name of Smart Capital Service Ltd. Interest of Rs.95,21,358/- was paid in AY: 2019-20. The assessing officer and the case of department is that mere filing of confirmation and self serving papers do not discharge the onus u/s 68 of the Act.

10.1 Now, with regard to this transaction ld. CIT(A) has appreciated that advances were made by multiple transactions through over draft account of the lender and proceeds of mutual funds.

10.2 Ld. CIT(A) has got examined the existence of the company through summons to investigation wing and relied its report.

10.3 Ld. AR has established that audited financial reflect substantial business turnover of Rs.76.53 crores during AY: 2019-20. Thus, to doubt the transaction was not justified and ld. CIT(A) has rightly interfered to delete the additions.

11. Assessee had received unsecured loan of Rs.1,20,00,000/- in AY: 2021-22 and paid interest Rs.16,85,353/- to Quasar India Ltd. Ld. CIT(A) has found the transaction to be genuine and we find that the lender is listed entity in BSE and the relevant documents to establish identity and creditworthiness in the form of income tax returns, confirmation and bank account were furnished to ld. tax authorities.

11.1 Ld. CIT(A) again has got the identity of this lender examined by issuance of summons and getting independent inquiry conducted u/s 250(4) of the Act.

11.2 Ld. AR has pointed out that the entire loan was repaid in subsequent financial years.

11.3 The company has share capital reserve of Rs.5.5 crores and during the year had total revenue of 6.5 crores.

11.4 Thus, where the company is listed on stock exchange a loan are received from banking channels and paid in subsequent years, the transaction could not have been doubted and ld. CIT(A) has rightly deleted the addition.

12. The assessee received an unsecured loan of Rs.1,95,00,000/- from Rita finance and Leasing Ltd. in AY: 2021-22 and paid an interest of Rs.6,40,445/-. The ld. CIT(A) has deleted this addition finding the transaction to be genuine.

12.1 As with regard to identity of this company it comes up that it is an NBFC and listed entity of BSE and there is no adverse material with regard to its operations from any of the statutory bodies.

12.2 The lender is assessed to tax and its vital evidence like financial statement and bank statements were filed.

12.3 Investigation wing has also supported the credibility and identity of this entity in report submitted u/s 250(4) of the Act.

12.4 Ld. AR has pointed out that entire loan was repaid during subsequent financial year.

12.5 The share subscription of the company is Rs.10 crores and during the year it filed return of income of Rs. 67 lakhs.

12.6 The aforesaid circumstances were sufficient for ld. CIT(A) to benefit the assessee and we find no reasons to interfere.

13. Ld. DR has relied the ground of the department wherein it is alleged that credible statement recorded during the search proceedings were overlooked. However, apart from statements, if any incriminating evidence was found evidencing any of the transactions to establish any accommodation entry or cash transaction could not be established. The findings arrived at ld. CIT(A) in favour of the assessee were on the basis of vital evidences including the effort made u/s 250(4) of the Act. We are of the considered view that assessee had duly discharged its onus and ld. Assessing Officer had on the basis of very trivial reasons doubted the transactions. Assessee had no burden to establish source of source still we find that issue in the case of all the lenders there were sufficient funds. There is no case of any of the entities being on way connected with operations of assessee or any person in its management. Thus, on the basis of aforesaid discussion we are inclined to sustain the ground raised in appeal of assessee and the ground raised in the appeal of department deserves to be rejected.

14. As a consequence of aforesaid the appeals of the assessee are allowed and of the department stand dismissed.