Section 68 loan credit explanation fails where lender funds are unexplained; addition remanded for fresh enquiry.

Deletion of the section 68 addition in respect of an unsecured loan from a holding company was held unsustainable where the assessee produced basic lender documents but did not explain the source and nature of the credits appearing in the lender's bank account immediately before the transfer. For the relevant assessment year, the first proviso to section 68 required a satisfactory explanation of the nature and source of the credited sum, and the appellate authority's reliance on the absence of independent enquiry was insufficient. The record also indicated that the further enquiry contemplated by section 250 was not carried out before reversing the addition. The matter was remanded for fresh consideration after necessary enquiry.

---

---

Issues: Whether the deletion of addition made under section 68 in respect of unsecured loan received from the holding company could be sustained without enquiry into the source and nature of the lender's funds and without compliance with the first proviso to section 68.

Analysis: The assessee had furnished basic particulars of the lender, bank statements, return of income and financial statements, but the core dispute was whether these materials by themselves established creditworthiness and genuineness of the transaction for the purpose of section 68. The appellate authority deleted the addition mainly on the ground that the Assessing Officer had not made independent enquiry, yet the record showed that the lender's bank account contained equivalent credits immediately before the transfer to the assessee and the assessee had not explained the source and nature of those credits. For the relevant assessment year, the first proviso to section 68 applied and required satisfactory explanation of the nature and source of the sum credited. The appellate authority also did not undertake the further enquiry contemplated by section 250 before reversing the addition.

Conclusion: The deletion of the addition was not sustainable on the material available, and the matter was remanded for fresh consideration after necessary enquiry. The appeal was allowed for statistical purposes in favour of the Revenue.

---