Unsecured loan verification requires proof of lender identity, capacity, transaction genuineness and repayment, preventing unexplained-credit treatment.

Unsecured loans supported by corporate, tax, audited financial, ledger and banking records may not be treated as unexplained cash credits where the borrower establishes the lenders' identity, financial capacity and the genuineness of the transactions. Accounting for interest with tax deducted at source and subsequent repayment further support the authenticity of the credits; credit entries should not be viewed in isolation from corresponding later debit entries. Material concerning entities other than the actual lenders or the borrower's transactions does not justify an adverse inference. On these stated facts, the assessee discharged its onus under Section 68, so the loans and consequential interest and loan-arrangement commission disallowances could not be sustained.

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Issues: Whether unsecured loans, supported by lender documentation and subsequently repaid, could be treated as unexplained cash credits.

Analysis: The assessee produced corporate, tax, audited financial, ledger and banking records establishing the identity and financial capacity of both lenders and the genuineness of the loan transactions. Interest was accounted for with tax deducted at source, and the loans were repaid in the subsequent financial year. The material and statements relied on for the additions concerned entities other than the actual lenders or transactions of the assessee and did not support an adverse inference. Established repayment, supported by documentary evidence, meant that the credit entries could not be considered in isolation from the corresponding later debit entries.

Conclusion: The assessee discharged its onus under Section 68; the loans were not unexplained cash credits, and the consequential disallowances of interest and loan-arrangement commission could not survive.

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