Unexplained money under section 69A cannot rest on third-party material alone when banking records and lender documents support a genuine loan.

Unsecured loan received through banking channels and recorded in the books could not be treated as unexplained money under section 69A where the assessee produced loan confirmation, bank records, audited lender statements, RBI registration, a loan agreement, repayment evidence and a no-dues certificate establishing identity, creditworthiness and genuineness. Third-party search material and generalized allegations, without direct incriminating evidence of cash routing, commission payment or flow-back, were insufficient to displace the assessee's documents. As the loan transaction was not shown to be sham, the related disallowance of interest expenditure and denial of set-off of interest income also could not survive.

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Issues: Whether the unsecured loan of Rs. 50,00,000 received through banking channels and recorded in the books of account could be treated as unexplained money under section 69A merely on the basis of third-party search material and generalized allegations, and whether the consequential disallowance of interest expenditure and denial of set off of interest income could survive.

Analysis: The assessee furnished loan confirmation, bank statements, audited financial statements of the lender, RBI registration, loan agreement, repayment details, no-dues certificate and other contemporaneous records establishing the identity, creditworthiness and financial capacity of the lender as well as the genuineness of the transaction. The amount was received and repaid through banking channels and stood reflected in the regular books of account. The assessment rested mainly on statements and findings from search proceedings in the case of third parties, but no direct incriminating material was brought on record to show that the assessee's own unaccounted money had been routed back as a loan, or that there was any cash trail, commission payment, or flow-back of funds. Mere generalized suspicion about the lender entity could not displace the documentary evidence specific to the assessee's case. Since the principal loan transaction was not shown to be sham, the consequential interest disallowance and denial of set off also could not stand.

Conclusion: The addition under section 69A was unsustainable and was deleted. The consequential disallowance of interest expenditure and denial of set off were also directed to be deleted, all in favour of the assessee.

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