Loan identity, creditworthiness and genuineness proved: cash credit addition and related interest disallowance were deleted.

An addition for an unsecured loan was unsustainable where the assessee produced the creditor's identity, financial capacity, loan confirmation, bank records and other supporting documents, and the transaction moved through banking channels. On those facts, the requirements of identity, genuineness and creditworthiness were met, so the burden shifted to the Revenue; mere non-appearance of the lender's representative did not justify the addition. The related interest disallowance was also unsustainable because it arose from the same accepted borrowing and the lender had accounted for the interest income. The cash credit addition and corresponding interest disallowance were therefore deleted.

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Issues: (i) Whether the addition made under section 68 on account of unsecured loan of Rs. 9 crores was sustainable when the assessee had furnished the lender's identity, financial capacity and transaction details. (ii) Whether the disallowance of interest of Rs. 54,66,393 on the same loan was sustainable.

Issue (i): Whether the addition made under section 68 on account of unsecured loan of Rs. 9 crores was sustainable when the assessee had furnished the lender's identity, financial capacity and transaction details.

Analysis: The assessee produced the lender's PAN, income-tax returns, audited financial statements, bank statements, annual return, board resolution, loan confirmation and documents showing the immediate source of funds. The loan was routed through banking channels, and the lender was itself an income-tax assessee with substantial own funds and investments. The law under section 68 requires the assessee to explain the nature and source of the credit by establishing the identity of the creditor, genuineness of the transaction and creditworthiness of the creditor. Once these primary facts are shown, the onus shifts to the Revenue. Mere non-appearance of the lender's principal officer, without any contrary material, is not enough to sustain the addition.

Conclusion: The addition under section 68 was not sustainable and the deletion of the addition was in favour of the assessee.

Issue (ii): Whether the disallowance of interest of Rs. 54,66,393 on the same loan was sustainable.

Analysis: The interest expenditure was directly linked to the loan that was found to be genuine. The lender had confirmed the transaction and the interest income was offered to tax in its return. Once the loan itself stood accepted as genuine, the corresponding interest paid on that borrowing was an allowable expenditure, and no independent basis for disallowance remained.

Conclusion: The disallowance of interest was not sustainable and its deletion was in favour of the assessee.

Final Conclusion: The Revenue failed to dislodge the assessee's documentary evidence on the loan transaction, and both the cash credit addition and the related interest disallowance were correctly deleted.

Ratio Decidendi: Where an assessee establishes the creditor's identity, creditworthiness and the genuineness of a loan transaction through cogent evidence, the burden shifts to the Revenue, and an addition under section 68 cannot rest merely on suspicion or non-appearance of the creditor's representative.

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