Section 69A cannot sustain addition for loan repayment where recorded books, audits, and bank evidence explain the source.

Section 69A could not be invoked to treat repayment of earlier-year loans as unexplained money where the loans had already been examined in scrutiny assessments, the repayments were recorded in audited books, and bank statements supported availability of funds. Allegations based on entry-operator statements were insufficient without cross-examination or corroborative material showing unexplained cash or a circular transaction. The addition was therefore unsustainable and was deleted.

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Issues: Whether the addition made under section 69A of the Income-tax Act, 1961 on account of repayment of earlier year loans was justified.

Analysis: The loans in question had been raised in earlier assessment years and had already been examined in scrutiny assessments under section 143(3) of the Income-tax Act, 1961. The repayments were recorded in the books and were supported by audited accounts and bank statements showing availability of funds. The addition was founded on statements of alleged entry operators, but no cross-examination was afforded and no direct or corroborative material was brought on record to establish that the repayments represented unexplained cash or a circular cash transaction. The deeming fiction under section 69A of the Income-tax Act, 1961 could not be invoked on mere presumption or generalized allegations when the source of repayment stood explained from recorded financial records.

Conclusion: The addition under section 69A of the Income-tax Act, 1961 was not sustainable and was deleted in favour of the assessee.

Ratio Decidendi: Section 69A of the Income-tax Act, 1961 can be applied only on the basis of actual discovery of unexplained money or other valuable article, and not on conjecture or uncorroborated allegation where the assessee has disclosed recorded and explained sources.

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