Section 68 addition fails where lender identity, creditworthiness and loan genuineness are proved through reliable documentary evidence.

An addition under section 68 could not be sustained where the assessee proved the lender's identity, creditworthiness and the genuineness of the loan through loan agreement, bank records, confirmation, audited accounts, RBI registration and repayment material. The loan was routed by account payee cheque against property security, and the lender's funds were shown to be traceable to its own banking transactions. Reliance on an alleged third-party statement was insufficient because no copy was supplied and no cross-examination was allowed. The evidentiary burden therefore shifted to the Revenue, which failed to rebut the assessee's material, and the addition was deleted.

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Issues: Whether the addition made under section 68 on account of the loan of Rs. 55 lakhs from the lender could be sustained when the assessee produced the loan agreement, bank records, confirmation, audited financial statements, and material showing source of funds.

Analysis: The assessee established the lender's identity, creditworthiness, and the genuineness of the transaction through documentary evidence, including RBI registration, audited accounts, bank statements, and repayment schedule. The loan was disbursed by account payee cheque against property security, and the material showed that the lender had funds traceable to its own banking transactions. The adverse inference was based substantially on an alleged statement of an erstwhile director, but no copy was supplied to the assessee and no cross-examination was afforded. In such circumstances, the burden that initially lay on the assessee stood discharged, and the evidentiary burden shifted to the Revenue, which was not met.

Conclusion: The addition under section 68 was not sustainable and was deleted; the issue was decided in favour of the assessee.

Ratio Decidendi: Once an assessee proves the identity of the creditor, the creditor's creditworthiness, and the genuineness of the loan transaction through reliable material, an addition under section 68 cannot be sustained merely on suspicion or on an untested third-party statement.

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