Unsecured loan addition deleted after establishing lender's identity, genuineness and creditworthiness under Section 68

ITAT Surat ruled in favor of appellant regarding unsecured loan addition under Section 68. Despite AO and CIT(A) rejecting lender's creditworthiness, ITAT found appellant established identity, genuineness and creditworthiness through PAN, ITR, confirmations, and account payee cheque transactions. Lender's affluent lifestyle, expensive medical treatment, and diamond factory operations demonstrated financial capacity. Lender's death preventing response to notices couldn't negate overwhelming evidence. Addition of Rs. 25,00,000 deleted. Consequently, interest disallowance also deleted as underlying loan was held genuine.

---

---

Issues:
1. Confirmation of addition in respect of unsecured loans received
2. Disallowance of interest paid to the creditor

Analysis:

Issue 1: Confirmation of addition in respect of unsecured loans received

The appellant appealed against the order passed by the Commissioner of Income Tax (Appeals) confirming the addition of Rs. 25,00,000 in unsecured loans received. The Assessing Officer raised concerns regarding the creditworthiness of the lender, Mr. Rafique Peer Mohammad, as replies were not received from him. The appellant claimed that the loan was genuine and had been repaid through the sale of polished diamonds. The CIT(A) dismissed the appeal citing lack of conclusive evidence on creditworthiness and past transactions with the lender. However, the Tribunal found in favor of the appellant, noting that the lender's identity, genuineness of the transaction, and creditworthiness were established. The Tribunal emphasized the chain of loan transactions and the repayment made in kind, leading to the deletion of the addition under section 68 of the Act.

Issue 2: Disallowance of interest paid to the creditor

The appellant also contested the disallowance of interest amounting to Rs. 1,25,000 paid to the creditor, Mr. Rafique Peer Mohammad. The appellant argued that interest was paid through banking channels with TDS deductions. The Tribunal, having already deleted the addition of the cash credit, ruled in favor of the appellant on this issue as well. The disallowance of interest was overturned, and the ground was allowed.

In conclusion, the Tribunal allowed the appeal of the assessee, directing the Assessing Officer to delete the addition of Rs. 25,00,000 made under section 68 of the Act and also overturning the disallowance of interest amounting to Rs. 1,25,000. The decision was pronounced in the open court on 14/11/2024.

---