Unexplained cash credit addition restricted where loan evidence supported banking repayments despite shell-company concerns and evidentiary inconsistencies.

Unexplained cash credit arising from an unsecured loan was addressed by noting that the loan pre-dated the lender's subsequent identification as a shell company. The assessee produced lender confirmations and directors' affidavits and showed later repayment through banking channels, with no specific defect identified in that material. However, the lender's later shell-company identification and inconsistencies in the evidence supported retention of an estimated taxable element. The full addition was considered unsustainable, and the taxable income was restricted to 15% of the loan amount.

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Issues: Whether the unsecured loan of Rs. 25,00,000, treated as unexplained cash credit, was liable to be fully added to income.

Analysis: The loan was obtained before the lender was subsequently identified as a shell company. The assessee produced confirmation and affidavits of the lender's directors and established repayment through banking channels in subsequent years. No specific defect in the supporting material was identified. However, the lender's subsequent identification as a shell company and inconsistencies in the evidence warranted retention of an estimated taxable element.

Conclusion: The full addition was unsustainable; income was restricted to Rs. 3,75,000, being 15% of the loan amount. The issue was decided partly in favour of the assessee.

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