Unsecured loans and unexplained cash credit: addition overturned where identity, genuineness and creditworthiness were substantiated by records.

Addition under unexplained cash credit provisions was contested where assessee accepted unsecured loans. The assessee produced identity details, account confirmations, bank statements and income tax acknowledgements to establish identity, genuineness and creditworthiness, and demonstrated availability of funds with lenders; these evidences undermined the assessing officers doubts and the unexplained cash credit addition was disallowed. Subsequent repayment of loans with tax deducted at source further corroborated the genuineness. The challenge to proportional interest addition was considered in the context of the primary loan disallowance and resolved accordingly.

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Issues: Whether the addition of Rs.60,00,000 as unexplained cash credits under Section 68 of the Income-tax Act, 1961 and the consequential disallowance of proportionate interest are justified.

Analysis: The assessee produced identity details (name, address, PAN), confirmations, bank statements, ITR acknowledgements and ledger accounts for the creditor companies. The material on record demonstrated availability of funds with the alleged creditors and established the genuineness of the transactions undertaken to meet working capital requirements. The repayments made subsequently with deduction of tax at source in April 2015 further corroborated the transactions. The Assessing Officer's doubts about low declared tax liability of the lenders did not outweigh the documentary evidence of funds and genuineness supplied by the assessee. The disallowance of proportionate interest flowed from the primary addition under Section 68 and was therefore consequential.

Conclusion: The addition of Rs.60,00,000 under Section 68 is not sustainable and is deleted; the consequential disallowance of proportionate interest is also deleted.

Ratio Decidendi: Where an assessee furnishes cogent documentary evidence establishing the identity, genuineness and availability of funds of creditors (including confirmations, bank statements and tax filings), an addition under Section 68 cannot be sustained merely because the creditors show low tax liability.

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