Section 68 unsecured loan additions fail where identity, creditworthiness and genuineness are proved by documentary evidence.

Where an assessee substantiates unsecured loan credits with confirmations, returns, scrutiny assessments, audited financial statements, tax audit reports and bank records, the identity, creditworthiness and genuineness of the lenders stand proved. An addition under section 68 cannot be sustained merely because the lenders reported low income or because the department seeks a source-of-source enquiry for the relevant year. The documentary trail showing routing through banking channels and disclosure in the lenders' own records was sufficient, so the addition was deleted.

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Issues: Whether the addition made under section 68 of the Income-tax Act, 1961 in respect of unsecured loans was sustainable.

Analysis: The assessee produced confirmations, returns, scrutiny assessments, audited financial statements, tax audit reports and bank records of the lenders. The loans and repayments were routed through banking channels, and the material on record showed that the lenders had disclosed the transactions in their own financial statements. The lower authorities rejected the claim mainly on the basis of low returned income of the lenders, without dislodging the documentary evidence establishing identity, creditworthiness and genuineness. In such a situation, the addition could not be sustained merely on suspicion or on an assumed need to prove source of source for the year in question.

Conclusion: The addition under section 68 was not sustainable and was deleted.

Final Conclusion: The assessee succeeded in showing that the unsecured loan credits were explained, so the impugned assessment and appellate orders could not stand.

Ratio Decidendi: Once the assessee substantiates the identity of the creditor, the genuineness of the transaction and the creditor's creditworthiness through cogent material, an addition under section 68 cannot be sustained merely because the creditors disclosed low income or because the department seeks a source-of-source enquiry for the relevant year.

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