Documentary proof of refund of earlier advance defeats an unexplained cash credit allegation without direct incriminating evidence.

Contemporaneous documentary evidence can rebut an allegation that a receipt is an unexplained cash credit where the assessee shows it is a refund of an earlier advance routed through banking channels. The note explains that, if the source of the original advance is not disputed and the receipt is supported by a memorandum of understanding, legal notices and settlement terms, section 68 cannot be invoked merely because the counterparty is alleged to be an accommodation entry provider. In the absence of specific incriminating material or direct evidence linking the receipt to an unexplained entry, the addition is not sustainable.

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Issues: Whether the amount received back by the assessee from the counterparty could be treated as unexplained cash credit under section 68 of the Income-tax Act, 1961, when the assessee had earlier advanced the same money through banking channels and the transaction was supported by documentary evidence.

Analysis: The assessee had advanced Rs. 2 crore to the counterparty under an arrangement for procurement of land, and the advance was made through banking channels. The record showed the underlying memorandum of understanding, legal notices, and a subsequent settlement agreement, all indicating that the later receipts were towards refund of the earlier advance. The source of the advance was not doubted by the assessing authority. The addition was founded mainly on general statements concerning the counterparty's alleged role in accommodation entries, but there was no specific statement or direct incriminating material connecting the assessee's receipt to an unexplained entry. In the absence of such corroboration, the receipt could not be characterized as an unexplained credit merely because the counterparty was alleged to be a paper or entry provider entity.

Conclusion: The addition under section 68 was not sustainable and was rightly deleted; the issue was decided in favour of the assessee.

Final Conclusion: The Revenue's appeal failed, and the deletion of the addition was upheld.

Ratio Decidendi: Where the assessee establishes by contemporaneous documents that the impugned receipt is a return of an earlier advance routed through banking channels, section 68 cannot be invoked in the absence of specific incriminating material or direct evidence showing that the receipt is an unexplained cash credit.

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