ITAT Rescinds Income Tax Addition for Real Estate Trader Over Unexplained Loan
The Income Tax Appellate Tribunal (ITAT) in Mumbai has provided a significant relief to a real estate trader by deleting a Rs. 4.27 crore addition under Section 68 of the Income Tax Act, 1961, related to an alleged unsecured loan from the trader's daughter-in-law.
Income TaxItatReal EstateUnexplained LoanTax ReliefReal EstateAug 09, 2025
The bench, comprising Sandeep Singh Karhail (Judicial Member) and Padmavathy S (Accountant Member), observed that there was no evidence of circular trading of unaccounted money between related parties. The tribunal also noted that no contrary evidence was presented to dispute the trader’s claim of the transaction with Aamby Valey Ltd. regarding a plot of land in Aamby Valey City.
The appellant, Gopaal Bhagwandas Ahuja, proprietor of M/s Ahuja Traders, had declared an income of ₹47.45 lakh for the assessment year 2014–15. The return was selected for scrutiny due to a significant increase in unsecured loans and squared-up loans during the year.
During the assessment proceedings, the Assessing Officer (AO) noted that the trader had taken and repaid loans from related parties, including his wife, his daughter-in-law, Mrs. Prerna Ahuja, and M/s Komal Exotic Spices Pvt. Ltd., a company where both women were directors. The AO found that Mrs. Prerna Ahuja’s declared income was only ₹3,434 for the relevant year and questioned her ability to extend a loan exceeding ₹4.27 crore. When the trader failed to produce evidence of actual banking transactions between himself and Mrs. Prerna Ahuja, the AO concluded that the loan was not genuine and added the amount to the trader’s taxable income under Section 68.
The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition, citing the lack of a clear link between transactions involving M/s Komal Exotic Spices Pvt. Ltd., Mrs. Prerna Ahuja, and the trader, and pointing out the auditor’s certification that the unsecured loan was received by cheque.
Before the ITAT, the trader argued that no actual loan was taken from Mrs. Prerna Ahuja. Instead, funds originally received from M/s Komal Exotic Spices Pvt. Ltd. were temporarily recorded in her name through journal entries as part of an escrow arrangement related to a lease and property assignment deal in Aamby Valley City, which later fell through.
The ITAT observed that the money was received from M/s Komal Exotic Spices Pvt. Ltd., not directly from Mrs. Prerna Ahuja. The transactions were duly reflected in ledger accounts and substantiated by bank statements. There was no evidence of unaccounted money or circular trading between related parties.
Finding that the trader had adequately explained the nature of the transaction and that no real loan was taken from Mrs. Prerna Ahuja, the Tribunal held that the conditions for invoking Section 68 were not met.
Case Details:
Case Title: Gopaal Bhagwandas Ahuja Versus ACIT
Case No.: ITA No.925/MUM/2025
Date: 29/07/2025
Counsel For Appellant: Tanzil R. Padvekar, Advocate
Counsel For Respondent: Swapnil Choudhary, Sr.DR
Frequently Asked Questions
What is Section 68 of the Income Tax Act, 1961?
Section 68 of the Income Tax Act, 1961, deals with the addition of unexplained cash credits to the total income of an assessee. If the source of cash credits is not satisfactorily explained, the tax authorities can add the amount to the assessee’s income.
Who is the Income Tax Appellate Tribunal (ITAT)?
The Income Tax Appellate Tribunal (ITAT) is a quasi-judicial body established under the Income Tax Act, 1961, to hear appeals against orders passed by the Commissioner of Income Tax (Appeals). It is a forum where taxpayers can seek redressal of their grievances.
What was the main issue in this case?
The main issue was the addition of Rs. 4.27 crore to the trader's taxable income under Section 68, based on an alleged unsecured loan from his daughter-in-law, Mrs. Prerna Ahuja. The ITAT deleted this addition, finding no evidence of an actual loan.
What evidence did the ITAT consider?
The ITAT considered bank statements, ledger accounts, and the trader’s explanation that the funds were originally received from M/s Komal Exotic Spices Pvt. Ltd. and recorded in his daughter-in-law’s name as part of an escrow arrangement.
What was the outcome of the ITAT’s decision?
The ITAT deleted the Rs. 4.27 crore addition to the trader’s taxable income, providing significant tax relief and validating the trader’s explanation of the transaction.
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