Genuineness of Unsecured Loans Proved: ITAT Mumbai Dismisses Revenue Appeal

The ITAT Mumbai dismissed the Revenue’s appeal, holding that the assessee had proved the genuineness of unsecured loans, justifying deletion of the Section 68 addition.

The present appeal has been filed by Income Tax Officer-27 (3)(1) against the Savla Associates in the ITAT Mumbai, challenging the order dated July 18, 2025, passed by NFAC, Delhi, for AY 2020-21.

The assessee is a resident partnership firm. For the AY 2020-21, it filed its return of income on December 27, 2020, declaring a loss of Rs. 3,74,132. The return was later selected for scrutiny assessment.

During the assessment proceedings, the AO noticed that the assessee had taken unsecured loans amounting to Rs. 5,54,00,000 from 37 different creditors during the year. The AO asked the assessee to submit documents to prove the identity of the creditors, their creditworthiness, and the genuineness of the loan transactions.

Even though the assessee submitted explanations and certain documents, the AO was not fully satisfied. He observed that the assessee had not furnished income-tax return copies, bank statements, and confirmations in respect of all creditors. Even where documents were filed, the AO was of the view that the creditworthiness of the creditors was not properly proved. The AO also alleged that cash was deposited in the bank accounts of the creditors just before the loans were advanced, raising suspicion about the genuineness of the transactions.

The AO treated the entire loan amount as unexplained cash credit under section 68 and added the same to the income of the assessee.

Being aggrieved with this addition, the assessee filed an appeal before the CIT(A). After examining the documents, confirmations, and other evidence placed on record, the CIT(A) was satisfied that the assessee had successfully proved the identity of the creditors, their creditworthiness, and the genuineness of the loan transactions. As a result, the addition made under section 68 was deleted by CIT(A).

The revenue then approached tribunal, During the hearing, the tribunal noted that the assessee provided documents to show that the loans they received were genuine. These included loan confirmations from the lenders, bank statements, and the lenders’ income tax returns. The AO noted that for some lenders, not all documents were provided or were incomplete.

However, when the case went to the CIT(A), the assessee provided detailed explanations and supporting documents for each loan, CIT(A) said that the assessee had enough proof to support the loan transactions. All the loans were also made through proper banking channels, which adds to their authenticity.

The tribunal added, Since the assessee is a real estate developer, it’s understandable that they might sometimes need to borrow money from different people. The records show that the assessee was able to prove who the lenders were, that they were reliable, and that the loans were genuine. Because of this, there is no problem with the previous authority’s decision to remove the added tax. As a result, the tribunal rejected the appeal.