ITAT Rules Mere Investigation Wing Report Not Enough; Dismisses Allegations of Bogus Loans u/s 68

ITAT Mumbai dismissed the Revenue’s appeal and upheld the deletion of Section 68 additions, holding that unsecured loans cannot be treated as unexplained when the assessee has proved identity, creditworthiness, and genuineness through proper documentary evidence.

ACIT filed the two appeals before the ITAT Mumbai, challenging an order passed by the CIT(A) Mumbai in favour of the assessee named Yatindra Satish Pairaikar. The order had deleted additions made on the grounds of unexplained cash credit under Section 68 of the Income Tax Act, 1961.

The assessee is a resident individual. The assessee had filed his income tax return (ITR) for the AYs 2010 and 2009 in the regular course under section 139(1) of the Act. The assessment for AY 2009-10 was initially completed, and that for AY 2010-11 was processed. Following this, AO received information that the assessee is a beneficiary of accommodation entries through bogus unsecured loans from two entities, M/s Naman Exports and M/s Meridian Gems.

According to the reports of the Investigation Wing, in AY 2010-11, an unsecured loan of Rs. 22,50,000 was obtained by the assessee from M/s Meridian Gems. On the other hand, in AY 2008-09 and 2009-2010, he had also claimed a loan amounting to Rs. 67,50,000 from M/s Naman Exports. The closing balance for said loan was Rs. 6,223,000. Based on the aforesaid findings, AO reopened the case and called the assessee to prove the genuineness and creditworthiness of the creditors. The assessee submitted all the documents and evidence explaining the same. However, AO did not consider the evidence valid and treated the unsecured loans as “fake” and made an addition of the same amount to the assessee’s income on the grounds of ‘unexplained cash credit’.

The aggrieved assessee filed an appeal before CIT(A) challenging the addition made by the AO. The CIT(A) deleted the addition, considering the evidence furnished by the assessee as valid. The dissatisfied tax authorities with the order of CIT(A) filed an appeal before the ITAT.

When the tribunal analysed the case, it noted that during reassessment proceedings, the AO asked the assessee to furnish all relevant documents proving the creditworthiness of creditors/lenders and the genuineness of the transaction. The assessee indeed furnishes all relevant documents proving the same, like copies of bank statements, confirmation, audited accounts and balance sheet, and income tax return copies of the lenders. However, the AO did not consider the evidence and instead made an addition to the income of the assessee merely based on the report submitted by the Investigation Wing.

Also, the Tribunal noted, “All evidence in relation to the repayment of the loans was also furnished before the departmental authorities.” Considering the above findings, the ITAT ruled that there are no justified reasons for making additions to the assessee’s income, as the identity and creditworthiness of the creditors have been proved genuine via the evidence furnished. In the final decision, the tribunal dismissed the appeal of Revenue and ruled in favour of the assessee.