ITAT Quashes Additions, Says Unsecured Loans Duly Explained

The assessee, a real estate company, filed its return for AY 2016-17, declaring a loss of Rs. 84.01 lakh. A search led to reassessment under Section 147. The Assessing Officer alleged the firm had received bogus unsecured loans of Rs. 2.29 crore from two companies linked to alleged entry operators. Based on this, the AO added the loans under Section 68, disallowed interest of Rs. 96,940 under Section 37(1), and added Rs. 57,250 as commission under Section 69C.

CIT (A)’s Ruling: The CIT(A) deleted all additions, holding that the assessee had proved the lenders’ identity, creditworthiness, and transaction genuineness with bank statements, confirmations, and ITRs. The Revenue challenged this before the ITAT, while the assessee cross-objected, pointing to procedural lapses and denial of proper opportunity. Aggrieved, the Revenue went into appeal.

Main Issue: Whether the alleged unsecured loans were genuine or taxable as unexplained credits, and whether interest and commission disallowances were justified.

ITAT’s Decision: The ITAT dismissed the Revenue’s appeal. It found that the AO had no direct evidence against the assessee and that documents provided by the assessee met the requirements of Section 68. The Tribunal noted that suspicion alone wasn’t enough and that part of the same loans had been accepted by the AO as genuine.

Since the loans were repaid and routed through banks, the additions under Sections 68, 69C, and 37(1) were rightly deleted. The Tribunal also took note of the denial of cross-examination, reinforcing the procedural flaw.

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