2025 (6) TMI 1538 - AT - Income Tax

Section 68 addition deleted after assessee proves lender identity, creditworthiness through bank statements and ITRs

The DCIT Central Circle-1 (4), Ahmedabad Versus Shani Prahladbhai Patel

ITAT Ahmedabad upheld CIT(A)'s deletion of addition under Section 68 for unexplained income. The assessee successfully discharged the primary onus by ... Unexplained income u/s. 68 - huge loans and even loans were given without charging any interest - A.R. argued that the onus on the assessee lies only to the extent of establishing the identity of the lenders, whereas in the present case the assessee has submitted the evidences to establish prima facie, the name of the lender, PAN Number, full Address, unsecured loan received during the year, contra confirmations, bank statements, Income-tax returns, interest amount, opening balance, loans received during the year and closing balance which proves that the assessee has duly discharged his primary onus to prove identity of lender, credit worthiness and genuineness of the transactions - CIT(A) deleted addition - HELD THAT:- The addition made by the AO invoking Section 68 does not hold it good, since the assessee has filed the confirmation letter from the lender, Bank statements, Income Tax Return and statement of total income of the lender. Thus the assessee has discharged its initial onus namely identity of the creditors, genuineness of the transactions and creditworthiness of the creditor. AO has disbelieved the same, but has not doubted the partial repayment of loan by the assessee during this assessment year and subsequent assessment year with appropriate TDS. Therefore the addition made by the AO u/s. 68 of the Act is not sustainable in law. No hesitation in confirming the order passed by the Ld. CIT(A), who deleted the addition made by the AO u/s. 68 of the Act - Assessee appeal allowed. Issues Presented and ConsideredThe core legal questions addressed by the Tribunal in this appeal are:Whether the addition of Rs. 6,42,60,000/- made by the Assessing Officer under section 68 of the Income Tax Act, 1961 (the Act) on account of unexplained unsecured loans received by the assessee from M/s. Rudra Enterprise is justified.Whether the assessee has discharged the onus of proving the identity, creditworthiness, and genuineness of the lender and the loan transactions as required under section 68 of the Act.Whether the Assessing Officer was correct in disregarding the repayments of the loan made by the assessee during the relevant and subsequent assessment years.Whether the Revenue's contention that the lender lacked capacity to provide such huge loans and that the loans were interest-free justifies sustaining the addition.Issue-wise Detailed Analysis1. Legitimacy of Addition under Section 68 on Account of Unsecured LoanThe relevant legal framework involves section 68 of the Income Tax Act, which deals with unexplained cash credits. Under this provision, if an assessee receives any sum as a loan or deposit and fails to satisfactorily explain the nature and source of such sum, it can be treated as income. The primary onus lies on the assessee to establish the identity of the lender, creditworthiness, and genuineness of the transaction.The Assessing Officer made an addition of Rs. 6,42,60,000/- being the outstanding unsecured loan amount as on 31.03.2016 from M/s. Rudra Enterprise, treating it as unexplained credit under section 68. The AO noted that the assessee had not provided a proper explanation for the outstanding loan balance, although partial repayment of Rs. 1.86 crores was acknowledged.In appellate proceedings, the assessee submitted detailed evidence including ledger accounts, bank statements of both parties, confirmation letters, and Income Tax Returns of the lender. The assessee contended that the loan was a continuing transaction, and the outstanding amount as on 31.03.2016 was repaid in April 2016, shortly after the end of the financial year.The CIT(A) examined the factual matrix and accepted the genuineness of the loan transaction, relying on documentary evidence showing the receipt and repayment of the loan within a short span. The CIT(A) observed that the AO himself admitted the genuineness of the lender by not disputing the entire loan amount but only the outstanding balance. The ledger accounts for two assessment years showed regular transactions between the parties, further substantiating the claim.The Tribunal noted that the assessee had discharged the primary onus by establishing the identity and creditworthiness of the lender and the genuineness of the transactions. The AO's addition was primarily based on suspicion without disproving the documentary evidence. Furthermore, the repayments made during the relevant and subsequent years with appropriate TDS were not disputed by the AO.The Tribunal relied on binding precedents from the Jurisdictional High Court, which clarified that once the assessee produces primary evidence such as bank statements, ledger accounts, and confirmation from the lender, the onus shifts to the Revenue to disprove the genuineness. Mere suspicion or inability to prove the lender's source of funds is insufficient to sustain an addition under section 68 against the assessee.2. Onus of Proving Creditworthiness and Source of LoanThe Revenue contended that the lender lacked the capacity to provide such huge unsecured loans and that the absence of interest on the loans indicated sham transactions. However, the Tribunal held that the assessee's obligation is limited to proving the identity, creditworthiness, and genuineness of the lender and the transaction. The source of the lender's funds is not the assessee's responsibility to establish.The Tribunal referred to authoritative rulings which held that the assessee's duty is discharged once primary documents such as bank statements and ledger accounts are furnished. The Revenue can pursue the lender separately if doubts exist about the lender's source of funds under other provisions such as section 69. The Tribunal emphasized that the absence of interest does not automatically render the loan suspect or unexplained.The Tribunal also highlighted that the Revenue did not produce any fresh material or evidence to counter the detailed documentation submitted by the assessee. The Revenue's argument was thus treated as speculative and insufficient to justify the addition.3. Treatment of Loan Repayment and Continuity of Loan TransactionThe repayment of Rs. 1.86 crores during the assessment year and the entire outstanding loan of Rs. 6,42,60,000/- in April 2016 was a crucial fact. The Tribunal noted that the repayment within a short period after the end of the financial year indicated a genuine loan transaction rather than a sham credit entry.Precedents cited by the Tribunal underscored that when repayments are made in the subsequent financial year and accepted by the Revenue, additions under section 68 are not sustainable. The Tribunal observed that the Assessing Officer did not dispute these repayments, which further weakened the case for addition.4. Application of Precedents and Legal ReasoningThe Tribunal extensively relied on the following key precedents:CIT vs. Ayachi Chandrashekhar Narsangji: The High Court held that when the genuineness of the loan and creditworthiness of the lender are established, and repayments are made in the subsequent year, the addition under section 68 cannot be sustained.CIT vs. Shri Mahavir Crimpers: The Court reaffirmed that the assessee's onus is to establish identity and genuineness, and once done, the addition is liable to be deleted unless the Revenue disproves the same.DCIT vs. Rohini Builders: The Court held that primary documents suffice to discharge the onus, and absence of the lender on summons does not render the transaction bogus if no contradictory evidence is produced.ITO vs. Shanti Enterprise: It was held that amounts received by account payee cheques satisfy the initial burden of proof and failure to satisfactorily explain source does not automatically result in addition.The Tribunal found these precedents squarely applicable and binding, reinforcing the conclusion that the addition under section 68 was not sustainable.Significant HoldingsThe Tribunal held:'The addition made by the Assessing Officer invoking Section 68 does not hold it good, since the assessee has filed the confirmation letter from the lender, Bank statements, Income Tax Return and statement of total income of the lender. Thus the assessee has discharged its initial onus namely identity of the creditors, genuineness of the transactions and creditworthiness of the creditor.''The Assessing Officer has disbelieved the same, but has not doubted the partial repayment of loan by the assessee during this assessment year and subsequent assessment year with appropriate TDS. Therefore the addition made by the Assessing Officer u/s. 68 of the Act is not sustainable in law.''Once primary documents are given, onus shifts from assessee to revenue. In absence of anything contradictory brought on the table, it wouldn't be fair to confirm addition u/s 68 of the Act.'The Tribunal concluded that the assessee had satisfactorily discharged the burden of proof regarding the unsecured loan, and the Revenue failed to establish any infirmity in the genuineness or creditworthiness of the lender. The repayment of the loan shortly after the end of the financial year further supported the genuineness of the transaction.Accordingly, the Tribunal dismissed the Revenue's appeal, confirming the deletion of the addition under section 68 made by the CIT(A).