Unexplained Cash Credit: documentary proof and banking trail outweighed non-service of notices, leading to deletion of addition.

Unexplained cash credit addition could not be sustained for three unsecured loan creditors where the assessee had furnished confirmations, income-tax returns and bank statements, and the loans were routed through banking channels and later repaid. The tribunal noted that the same category of supporting evidence was produced for all fourteen creditors, and that the addition survived only because notices under section 133(6) were not served. As the documentary trail supported identity, creditworthiness and genuineness, mere non-service of notices was held insufficient to reject the explanation. The addition was directed to be deleted in favour of the assessee.

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Issues: Whether the addition sustained in respect of three unsecured loan creditors as unexplained cash credit could stand when the assessee had furnished confirmations, income-tax returns and bank statements, and the loans were routed through banking channels and repaid subsequently.

Analysis: The assessee had produced the same class of supporting material for all fourteen creditors. The addition was sustained only for three creditors mainly because notices issued under section 133(6) of the Income-tax Act, 1961 were not served. The record showed that the loans were received and repaid through banking channels, interest on the loans was allowed, and the documentary evidence addressed the identity, creditworthiness and genuineness of the transactions. Mere non-service of notices, by itself, was not sufficient to reject the explanation where the evidentiary trail remained intact.

Conclusion: The addition sustained by the CIT(A) was not justified and was directed to be deleted; the issue was decided in favour of the assessee.

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