Accommodation entry credits remain taxable as unexplained cash credit despite banking repayment; related interest and commission additions also survive.

Accommodation-entry loan credits can be treated as unexplained cash credits under section 68 where surrounding material shows a shell-entity routing arrangement and the assessee is identified as a beneficiary. Repayment through banking channels, including partial repayment during the year, does not cure the original non-genuine character of the credit. On that basis, the principal addition was sustained, and the related additions for interest and estimated commission also remained allowable as consequential to the same unexplained credit.

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Issues: (i) Whether the loan credit of Rs. 2 crore treated as accommodation entry could be added as unexplained cash credit under section 68 of the Income-tax Act, 1961 despite repayment through banking channels; (ii) Whether the additions towards interest and commission survived once the principal addition was sustained.

Issue (i): Whether the loan credit of Rs. 2 crore treated as accommodation entry could be added as unexplained cash credit under section 68 of the Income-tax Act, 1961 despite repayment through banking channels.

Analysis: The assessment material and statements of the entry operators were accepted as showing a web of shell entities used to route accommodation entries, and the assessee was found to be a beneficiary of one such entity. The mere fact that the money moved through banking channels and was partly repaid during the year did not dislodge the character of the transaction when the credit itself was found to be non-genuine and in the nature of an accommodation entry. Repayment of such a credit was held not to cure the defect in the original unexplained nature of the money.

Conclusion: The addition of Rs. 2 crore under section 68 was upheld and the relief granted by the first appellate authority was reversed.

Issue (ii): Whether the additions towards interest and commission survived once the principal addition was sustained.

Analysis: The additions for interest and estimated commission were consequential to the principal loan addition. Once the underlying unexplained credit was restored, the ancillary additions based on that credit also remained sustainable.

Conclusion: The additions of Rs. 15,06,164 towards interest and Rs. 6 lakh towards commission were upheld.

Final Conclusion: The Revenue's challenge succeeded in full and the assessee's cross-objection failed, with the reassessment additions restored in entirety.

Ratio Decidendi: Repayment through banking channels does not by itself negate an addition under section 68 where the credit is found, on the basis of surrounding material, to be an accommodation entry and therefore not a genuine loan.

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