Deeming provision for unexplained credits: bank records and remand report can substantiate a loan explanation and negate additions.

The note addresses treatment of unexplained credit entries under the deeming provision for credited sums, focusing on the evidentiary standard required to treat a cash-credit as a genuine loan. It explains that corroborative bank records, confirmations and a remand report that trace deposits and repayments can satisfy the assessee's explanation and the requisite inquiry into "source of the source." Where the assessing officer or appellate authority makes no adverse finding on repayment or source and documentary evidence corroborates transactions, the legal effect is that the addition under the deeming provision should not be sustained.

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Issues: Whether the addition of Rs. 10,00,000 made under section 68 of the Income-tax Act, 1961 can be sustained where the assessee produced confirmations, bank statements and remand report evidence showing the funds were loans repaid to the creditor.

Analysis: The proceedings involved documents first produced before the appellate authority and remand report was obtained in compliance with Rule 46A of the Income-tax Rules, 1962. Bank records of the creditor and the assessee were examined in the remand report and corroborated the transactions: deposits into the creditor's account on 26.03.2014 and 28.03.2014, transfers to the assessee on 28.03.2014 and repayment by the assessee to the creditor on 04.04.2016. Section 68 of the Income-tax Act, 1961 requires that where a sum is credited and the explanation is not satisfactory the sum may be charged as income, and where the sum is a loan the explanation of both the assessee and the person in whose name the credit is recorded must be found satisfactory by the assessing officer. The factual matrix before the Tribunal showed no adverse inquiry or finding by the AO or the lower appellate authority on the issue of repayment or on the requirement to prove the source of the source; the remand report and bank statements supported the assessee's explanation. Given that section 68 is a deeming provision requiring careful evidentiary scrutiny, and in the absence of contrary findings by the AO or CIT(A) on the repayment and source issues, the benefit of doubt was held to favour the assessee.

Conclusion: The addition of Rs. 10,00,000 made under section 68 of the Income-tax Act, 1961 is deleted and the appeal is allowed in favour of the assessee.

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