Section 68 loan addition fails where identity, creditworthiness and genuineness are proved through banking records and audited documents.

A section 68 addition for an unsecured loan was found unsustainable where the assessee produced the creditor's audited financials, income-tax acknowledgement, loan confirmation, bank records, constitutional documents and proof of repayment with interest and TDS. These materials established the creditor's identity, creditworthiness and the genuineness of the transaction, shifting the burden to the tax authority to make an independent verification. As no such enquiry was undertaken, including no verification from the creditor's assessing officer, the addition rested on suspicion and conjecture and was deleted.

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Issues: Whether the addition made under section 68 of the Income-tax Act, 1961, in respect of the loan of Rs. 10,00,00,000 received from the creditor was sustainable.

Analysis: The assessee produced the creditor's audited financial statements, income-tax return acknowledgement, loan confirmation, bank statements, memorandum and articles of association, and proof of repayment with interest and TDS deduction. The material showed that the creditor was a registered NBFC with substantial free reserves and other financial resources, and the loan was routed through banking channels and subsequently repaid. Once the assessee discharged the initial onus to establish identity, creditworthiness and genuineness of the transaction, the burden shifted to the Assessing Officer to conduct an independent verification. No such independent enquiry was made, including no verification from the creditor's Assessing Officer, and the addition was based on suspicion and conjecture.

Conclusion: The addition under section 68 was not justified and the deletion of the addition was upheld in favour of the assessee.

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