Unexplained loans: identity and banking trail can explain part of loans where accumulated savings up to basic exemption is shown.

Addition under Section 68 for unexplained unsecured loans is examined by reference to identity, genuineness and source of funds: identity of seven lenders accepted on PANs; genuineness supported by banking receipts and lender confirmations; creditworthiness requires proof of source and bank statements showed cash deposits into lenders' accounts before remittances. For AY 2016 17 the Tribunal treated accumulated past savings and non taxable receipts up to the basic exemption limit of Rs.2,50,000 per individual as acceptable source, thereby explaining amounts up to that limit and leaving the remaining aggregate amount of Rs.7,30,000 unexplained.

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Issues: Whether the addition of Rs. 23,60,000 under Section 68 of the Income-tax Act, 1961 for unexplained unsecured loans received by the assessee-company is justified.

Analysis: The identity of the seven lenders (female family members of promoters/directors/shareholders) is established by furnished PANs. The genuineness of transactions is supported by receipt of funds through banking channels and confirmations/affidavits from the lenders. Creditworthiness requires proof of source of funds; bank statements show cash deposits into the lenders' accounts immediately prior to issuance of cheques to the company. For A.Y. 2016-17 the basic exemption limit is Rs. 2,50,000 and individuals with income up to that threshold may legitimately rely on accumulated savings and non-taxable receipts. Applying these principles, the Tribunal accepts, as source, accumulated past savings and income up to Rs. 2,50,000 per lender and treats amounts up to that limit as explained. The remaining amounts above Rs. 2,50,000 where no sufficient source is shown remain unexplained.

Conclusion: The addition under Section 68 is deleted to the extent of Rs. 2,50,000 for each lender and sustained to the extent of the remaining unexplained amount aggregating Rs. 7,30,000; the assessee's appeal is partly allowed (in favour of the assessee to the extent indicated and against the assessee for the balance).

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