Loan Routed Through bank, Interest Paid with TDS, and Fully Repaid Cannot Be Treated as Unexplained Cash Credit: ITAT

Loan Routed Through bank, Interest Paid with TDS, and Fully Repaid Cannot Be Treated as Unexplained Cash Credit: ITAT

In a recent case, a company received a loan of Rs. 50 lakh. The Income Tax Department selected the case for scrutiny, alleging that the company received a bogus loan from another company. However, the company later proved it was a genuine bank transaction, interest and TDS were properly paid, and the loan was repaid later. The Tribunal agreed with the company, cancelled the tax addition made by the tax authority and allowed the writ petition.

The present appeal has been filed by a company named Maruti Multichem Private Limited (Appellant) against the DCIT, Circle-2(1)(1), Ahmedabad (Respondent) in the Income Tax Appellate Tribunal (ITAT) Ahmedabad “C” Bench before Smt Annapurna Gupta (Accountant Member) and Shri T.R. Senthil Kumar (Judicial Member). The case is related to the assessment year 2017-18 and was heard on November 07, 2025.

The appeal had been filed challenging an order dated June 16, 2025, passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. The order has originated from an earlier assessment order passed under section 147 of the Income Tax Act, 1961.

Background of Case:

The assessee had filed its income tax return (ITR) for the assessment year 2017-18, declaring a total income of Rs. 1.79 crore. Later, the case was chosen for the purpose of scrutiny by the Income Tax department, alleging to the assessee that it received a bogus loan of Rs. 50 lakh from Dishman Pharmaceuticals and Chemicals Ltd. (now called as Dishman Carbogen Amcis Ltd.).

The Assessing Officer (AO) treated this loan amount as unexplained cash credit under Section 68 and taxed it under Section 115BBE, demanding additional tax.

Assessee’s Argument

The assessee argued that the loan of Rs. 50 lakh was genuine, as it was received through banking channels (not cash). Interest was paid on the loan with proper TDS deductions. The loan was completely repaid in 2019 through cheques.

The assessee also furnished the required documents, like confirmations from the lender, balance sheets, and bank statements. The assessee claimed that both the identity and creditworthiness of the lender and the genuineness of the transaction were clearly proved.

The assessee, to defend itself, also cited an earlier judgment of the Gujarat High Court (Ayachi Chandrashekhar Narsangji and Ambe Tradecorp Pvt. Ltd.) based on a similar matter.

Tribunal’s Findings

When the case was taken before the ITAT Ahmedabad, the tribunal made the following conclusions:

• The company had, in actuality, received Rs. 50 lakh through bank transfers.
• Interest and TDS payments were properly made and recorded.
• The entire loan was repaid in January 2019.
• Since the Revenue did not find any evidence of a cash trail or falsity in the transaction, the Tribunal said the addition was not justified.
• Additionally, the tribunal endorsed the Gujarat High Court’s ruling cited by the assessee, where the court ruled that when a loan is accepted and repaid later, it cannot be treated as unexplained income.

Final Decision

• Based on the above findings, the tribunal, in its final decision, deleted the addition of Rs. 50 Lakh to the assessee’s income made by the Assessing Officer (AO). Meaning, the final decision has been announced in favour of the assessee and has been fully allowed.