Section 68 addition fails when retracted statements are outweighed by bank records and audited documents proving genuine loan.

Addition under section 68 was held unsustainable where the Revenue relied mainly on a search statement and a letter alleging accommodation entries, but both were later retracted. The lender then confirmed the loan and produced bank statements, audited accounts and other records showing payment through banking channels and no cash deposits before cheque clearance. As the alleged cash trail was not independently established and the assessee's three section 68 requirements were not disproved, the documentary evidence prevailed over the retracted statement. The loan was treated as genuine, with identity and creditworthiness of the creditor established, and the addition was deleted.

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Issues: Whether the addition made under section 68 on the basis of a search statement and letter alleging accommodation entries could be sustained when the loan creditor later retracted the statement and supported the loan with confirmations, bank statements and audited accounts.

Analysis: The addition rested principally on the statement recorded during search and the lender's letter, but those statements were later retracted. The lender's response to notice under section 133(6) included confirmation of the loan, bank statements, audited balance sheet and other supporting documents showing payment through banking channels and absence of cash deposits before clearance of the cheques. The material relied on by the Revenue was not corroborated by independent evidence, the alleged cash trail was not established, and the assessee was not shown to have failed on the three essential requirements under section 68. In these circumstances, the retracted statement could not prevail over the documentary evidence supporting the transaction.

Conclusion: The addition under section 68 was not sustainable. The loan transaction stood proved as genuine, with the creditor's identity and creditworthiness established, and the deletion of the addition was /confirmed in favour of the assessee.

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