Unexplained cash credits under section 68 fail where lender identity, genuineness and source of funds are duly substantiated.

Unsecured loans were not treated as unexplained cash credits under section 68 where the assessee substantiated the lenders through income-tax returns, bank statements, confirmations, affidavits, audited financial statements and incorporation details. The bank responses under section 133(6) showed KYC-compliant lenders and no cash deposits before cheque issuance, while the lenders' balance sheets reflected adequate funds or borrowings to advance the loans. Identity, genuineness and source of funds were therefore established, and low or nil income of some lenders did not by itself defeat creditworthiness. The addition under section 68 was held unsustainable and the CIT(A)'s deletion was upheld.

---

---

Issues: Whether the Revenue was justified in treating the unsecured loans received by the assessee as unexplained cash credits and sustaining the addition under section 68 of the Income-tax Act, 1961.

Analysis: The assessee produced the lenders' income-tax returns, bank statements, confirmations, affidavits, audited financial statements and other incorporation details. The bank responses under section 133(6) of the Income-tax Act, 1961 showed that the lenders were KYC-compliant entities and that no cash had been deposited in their accounts before issuance of cheques to the assessee. The lender companies' balance sheets showed adequate owned funds or sufficient borrowings and liquid resources to advance the amounts. On this material, the identity of the lenders, the genuineness of the transactions and the source of funds were held to be established. The mere fact that some lenders had negligible or nil income did not, by itself, negate creditworthiness where the financial statements explained availability of funds.

Conclusion: The addition under section 68 was not sustainable, and the deletion made by the CIT(A) was upheld in favour of the assessee.

---