Section 68 scrutiny of unsecured loans requires proof of identity, creditworthiness and genuineness before credit is accepted.

Under section 68 of the Income-tax Act, an unsecured loan is accepted only if the assessee proves the creditor's identity, creditworthiness and the genuineness of the transaction. Here, although confirmation, bank records, commercial licence and passport details were produced, there was no loan agreement, no financial statements of the lender and no material showing repayment or interest, while cash was deposited in the lender's account immediately before remittance. On those facts, the initial burden was not satisfactorily discharged and the addition as unexplained credit was restored.

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Issues: Whether the deletion of addition made under section 68 of the Income-tax Act, 1961, in respect of an unsecured loan was sustainable on the basis of the evidence produced by the assessee.

Analysis: The assessee produced a confirmation of loan, bank statement, commercial licence and passport details to establish the lender's identity and the movement of funds through banking channels. However, the record did not contain a loan agreement, financial statements of the lender, or other material showing its creditworthiness. The bank account of the lender reflected cash deposits immediately before the remittance, and there was no evidence of interest payment or repayment of the alleged loan. In these circumstances, the initial onus under section 68 was held not to have been satisfactorily discharged, and the appellate relief was found to have been granted without adequately meeting the Assessing Officer's objections.

Conclusion: The deletion of the addition was not justified and the addition under section 68 was restored.

Final Conclusion: The revenue succeeded on the sole substantive issue, and the assessment addition treating the unsecured loan as unexplained credit stood revived.

Ratio Decidendi: For a credit to be accepted under section 68, the assessee must satisfactorily establish the creditor's identity, creditworthiness and genuineness of the transaction; failure to produce adequate proof of financial capacity and surrounding transactional authenticity justifies addition as unexplained cash credit.

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