Assessee wins appeal as loan repayment through banking channels negates Section 68 addition for unexplained cash credit

The ITAT Surat allowed the assessee's appeal against addition under Section 68 for unexplained cash credit regarding unsecured loan receipts. Despite the assessee failing to prove identity, creditworthiness and genuineness of transactions initially, the tribunal found that complete repayment details through banking channels were provided and verified. The revenue did not controvert these repayments. Following precedents from Gujarat HC in Ayachi Chandrashekhar Narsangji and Amber Tradecorp cases, the tribunal held that where loan repayment is accepted by the department in subsequent years, no addition under Section 68 can be made in the current year. The CIT(A)'s confirmation of the addition was deemed unjustified.

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Issues Involved:
1. Addition of Rs. 1,42,85,813/- as unexplained cash credit u/s 68 of the IT Act.
2. Assessment of unsecured loans and their genuineness.

Summary:

Issue 1: Addition of Rs. 1,42,85,813/- as unexplained cash credit u/s 68 of the IT Act

The assessee filed an appeal against the order of NFAC, Delhi, which upheld the AO's addition of Rs. 1,42,85,813/- as unexplained cash credit u/s 68 of the IT Act. The AO had treated unsecured loans aggregating Rs. 4.96 crores as unexplained and added them u/s 68 in the assessment order passed u/s 144 on 29.12.2017. The assessee argued that the majority of the loans were from earlier years and provided bifurcation of old loans and new loans, along with supporting documents like ledger accounts, confirmations, bank statements, ITRs, and balance sheets of lenders. The Ld.CIT(A) deleted the addition of Rs. 3.35 crores (old loans) but confirmed the addition of Rs. 1.42 crores (new loans).

Issue 2: Assessment of unsecured loans and their genuineness

The Ld.CIT(A) prepared a summary of unsecured loans from 25 parties, noting that most lenders had low income and meager bank balances, with amounts transferred shortly before being given to the assessee. The Ld.CIT(A) concluded that the assessee failed to prove the genuineness and creditworthiness of the transactions. The Tribunal, however, found that the assessee had provided sufficient evidence, including repayment details of the loans in the subsequent year, which were not disputed by the revenue. The Tribunal cited various case laws, including CIT Vs Ayachi Chandrashekhar Narsangji and DCIT Vs Rohini Builders, to support the view that no addition should be made if the loan is repaid and the identity and creditworthiness of the lenders are established.

Conclusion:

The Tribunal allowed the appeal, holding that the assessee had discharged the primary onus of proving the genuineness of the loans and that the AO had not conducted any independent investigation. The addition of Rs. 1.42 crores was deleted, and the appeal was allowed in favor of the assessee. The order was pronounced in the open court on 31/05/2024.

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