Unsecured loan addition fails where identity, creditworthiness and genuineness are proved and only a retracted third-party statement is relied on.

Identity, creditworthiness and genuineness of unsecured loan creditors were established through confirmations, PAN details, audited financials, bank statements and other primary documents, with the loans routed through banking channels and interest paid after tax deduction at source. The revenue relied mainly on a retracted third-party statement, but that person did not furnish incriminating material when examined and confirmed the loan transactions, and no effective enquiry was made from the lenders' assessing officers. On these facts, the initial onus under section 68 was held discharged, and the addition under section 68 together with the related interest disallowance under section 69C was deleted as unsustainable.

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Issues: Whether the additions made towards unsecured loans under section 68 and the related interest disallowance under section 69C were sustainable where the assessee produced confirmations, PAN details, bank statements, audited financials and other documents of the lenders, and the revenue relied mainly on a retracted third-party statement.

Analysis: The evidentiary record showed that the lenders were identifiable corporate entities with PAN, registered addresses, filed returns, audited accounts and banking-channel transactions, and interest was paid after deduction of tax at source. The revenue's case rested principally on a statement recorded from a third party in investigation proceedings, but that statement had been retracted and, when the person was examined by the Assessing Officer, he did not furnish incriminating material against the assessee and confirmed the loan transactions. The order also notes that no effective enquiry was made from the assessing officers of the lender companies to rebut their creditworthiness. On these facts, the assessee was held to have discharged the initial onus under section 68, and the adverse inference drawn only on the basis of the third-party material was not accepted.

Conclusion: The addition under section 68 and the corresponding disallowance of interest under section 69C were not sustainable and were rightly deleted.

Ratio Decidendi: When the assessee proves the identity, creditworthiness and genuineness of loan creditors through primary documentary evidence and the revenue relies only on a retracted third-party statement without effective rebuttal or corroboration, an addition under section 68 and a consequential interest disallowance cannot be sustained.

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