Loan genuineness and bank-traceable funds defeated section 68 and related unexplained expenditure additions

Where the assessee substantiates a loan with confirmation, PAN, bank statements, NBFC registration, ITRs, audited accounts and the loan agreement, the primary onus under section 68 is discharged by showing identity, creditworthiness and genuineness, and the addition cannot be sustained on suspicion or a third-party statement alone. Since the funds moved through banking channels, the loan was repaid, and no independent material rebutted the documentary evidence or proved the transaction to be bogus, the section 68 addition was deleted. The related section 69C disallowance for interest was also deleted because the factual basis for treating the expenditure as unexplained was not established.

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Issues: Whether the additions made under section 68 as unexplained cash credit and under section 69C as unexplained expenditure, arising from the loan transaction and related interest payment, were sustainable.

Analysis: The assessee produced loan confirmation, PAN details, bank statements, NBFC registration certificate, ITRs, audited accounts, and the loan agreement to establish the identity, creditworthiness, and genuineness of the lender and the transaction. The transaction was routed through banking channels and the loan stood repaid. The addition was based mainly on a third-party statement and suspicion of accommodation entry, without any effective rebuttal of the documentary evidence or any independent material showing that the loan was sham or bogus. The interest-related addition was also treated as unsupported, though the transaction had already been repaid and the relevant year-wise factual basis was not established to justify the disallowance.

Conclusion: The additions under sections 68 and 69C were deleted and the issue was decided in favour of the assessee.

Ratio Decidendi: Where the assessee discharges the primary onus under section 68 by producing credible documentary evidence showing identity, creditworthiness, genuineness, and actual banking-channel movement of funds, an addition cannot be sustained merely on suspicion or generalized allegations of accommodation entry without contrary material.

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