Addition for unsecured loans u/s 68 deleted as onus met, AO ignored confirmations u/s133(6)

ITAT Mumbai upheld the order of CIT(A) deleting the addition made u/s 68 towards alleged unexplained cash credits arising from unsecured loans. The Tribunal noted that the AO had independently issued notices u/s 133(6) to the lenders, who duly confirmed the loan transactions and furnished requisite documentary evidence. Despite this, the AO ignored the confirmations, repayment evidence and banking records, and relied solely on the Investigation Wing's report to treat the loans as accommodation entries. Holding that the assessee had discharged its onus regarding identity, creditworthiness and genuineness, the ITAT dismissed the Revenue's appeal.

---

---

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether additions under section 68 of the Income-tax Act, 1961, towards alleged unexplained cash credits in the form of unsecured loans, were sustainable where the assessee had furnished confirmations, bank statements, returns and financials of the creditors and the loans were received and repaid through banking channels.

1.2 Whether the Assessing Officer could disregard documentary evidence and confirmations received in response to notices under section 133(6), and make additions solely on the basis of an Investigation Wing report and statements of third parties, treating the transactions as accommodation entries.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Sustainability of additions under section 68 based on Investigation Wing report despite evidences confirming unsecured loans

Legal framework (as discussed):

2.1 The additions were made by invoking section 68 of the Income-tax Act, 1961, treating the unsecured loans as unexplained cash credits. The Assessing Officer conducted enquiry including issuance of notices under section 133(6) to the alleged lenders/creditors.

Interpretation and reasoning:

2.2 The Tribunal noted that, in the course of reassessment, the Assessing Officer had independently called for details of unsecured loans and had also issued notices under section 133(6) to the creditors. The assessment order itself recorded that the lenders, in response to section 133(6) notices, furnished requisite details and confirmed the loan transactions.

2.3 The Tribunal observed that the assessee had produced before both the Assessing Officer and the first appellate authority: (i) confirmations from the lenders; (ii) bank statements; (iii) audited accounts and balance sheets; and (iv) income tax returns of the lenders, thereby demonstrating identity and creditworthiness of the creditors and genuineness of the loan transactions.

2.4 As to the factual matrix, the first appellate authority found that loans aggregating to Rs. 67,50,000/- from one creditor were taken through cheques in financial years 2007-08 and 2008-09, with a closing balance of Rs. 62,23,000/- as on 31.03.2009, which was repaid in subsequent years through banking channels. Similarly, the loan of Rs. 22,50,000/- from the other creditor was received through cheques during financial year 2009-10, partly repaid in the same year and the balance in subsequent years, also through banking channels. Evidence of such repayments was on record.

2.5 On these findings, the Tribunal agreed with the first appellate authority that the assessee had discharged the onus under section 68 to establish the identity and creditworthiness of the creditors and the genuineness of the loan transactions.

2.6 The Tribunal held that, notwithstanding the above evidences and confirmations received directly from creditors in response to section 133(6) notices, the Assessing Officer chose to ignore them and relied solely on the Investigation Wing report and statements of persons connected with the lenders to characterise the loans as bogus/accommodation entries. Such an approach was held to be impermissible.

2.7 The Tribunal emphasized that the Assessing Officer cannot make additions "purely on conjecture and surmises" by simply relying on the Investigation Wing report while disregarding cogent evidence brought on record by the assessee and supported by direct confirmations from the creditors.

Conclusions:

2.8 The Tribunal concluded that there was no justifiable reason to treat the loan transactions as bogus or as accommodation entries, and therefore the additions under section 68 as unexplained cash credits were unsustainable.

2.9 The deletion of the additions by the first appellate authority was upheld, and the departmental grounds challenging such deletion were dismissed.

---