Onus to prove genuineness of loan transactions satisfied by contemporaneous documents and bank repayments, so interest disallowance deleted.

Whether an interest disallowance can stand where the assessee established identity, creditworthiness and genuineness of earlier-year loans: the tribunal applied the principle that contemporaneous documentary evidence (affidavits, confirmations, ITR acknowledgements, ledgers, bank statements) and recorded repayments satisfy the onus to explain source and genuineness, and where no additions were made to the underlying loan amounts and revenue produced no cogent rebuttal, the interest disallowance is unsustainable and was deleted in favour of the assessee.

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Issues: Whether the disallowance of interest expenditure of Rs. 3,00,000/- can be sustained where the assessee has discharged the onus to prove identity, creditworthiness and genuineness of the loan transactions and no additions were made in respect of the underlying loans.

Analysis: The assessee produced affidavits, confirmations, income-tax return acknowledgements, ledger entries and relevant bank statements to establish the identity and capacity of the parties and the genuineness of the loan transactions. The loans on which interest was claimed were shown to have been taken in earlier years and repaid subsequently; the assessing officer made no additions in respect of those loan amounts for the relevant earlier years. The documentary evidence placed by the assessee was not convincingly challenged by the revenue and no cogent material was produced to demonstrate defects in the proofs furnished. In these circumstances, the evidence met the statutory onus to explain the source and genuineness of the loans and to substantiate payment of interest through banking channels.

Conclusion: The disallowance of interest of Rs. 3,00,000/- is deleted and the appeal is allowed on this ground in favour of the assessee.

Ratio Decidendi: Where the assessee, by contemporaneous documentary evidence and repayments reflected in books and bank statements, satisfactorily discharges the onus to establish identity, creditworthiness and genuineness of earlier-year loan transactions and no additions are made to those loan amounts, interest disallowance solely on the basis of association with search material cannot be sustained.

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