ITAT: Section 68 Addition Deleted as Assessee Proved Loan Genuineness; Mere Third-Party Search Findings Not Sufficient

The assessee, an individual, filed her return declaring income of Rs. 4.23 lakh. The case was reopened under Section 147 based on information from the Investigation Wing alleging that the assessee received accommodation entries in the form of unsecured loans amounting to Rs. 6.70 crore from two entities, including M/s Ganak Conglomerate Pvt. Ltd.

During reassessment, the assessee submitted that the transactions were genuine, routed through banking channels, supported by confirmations, financial statements, and PAN details of lenders. It was explained that the funds were received for a proposed property transaction, which did not materialise, and the amounts were subsequently repaid.

The Assessing Officer, however, treated Rs 5 crore received from Ganak Conglomerate Pvt. Ltd as unexplained cash credit under Section 68, primarily relying on search findings in third-party cases alleging the entity to be a shell company. The CIT(A) deleted the addition after examining the evidence and banking trail. Aggrieved, the Revenue filed an appeal before the Tribunal.

Issue Before ITAT: Whether an addition under Section 68 can be sustained solely on the basis of third-party investigation findings without bringing any direct incriminating material against the assessee, despite the assessee furnishing documentary evidence establishing the genuineness of the transaction.

ITAT’s Decision: The Tribunal upheld the order of the CIT(A) and dismissed the Revenue’s appeal. It held that the Assessing Officer failed to bring any specific incriminating material linking the assessee to alleged accommodation entries and merely relied on generalised findings from search actions in unrelated cases.

The Tribunal noted that the assessee had furnished complete documentary evidence, including confirmations, bank statements, and financial statements of the lender, establishing identity, creditworthiness, and genuineness of the transaction. The entire transaction was routed through banking channels and the amount was repaid within a reasonable time, which remained uncontroverted.

It was further held that once the assessee discharges the initial onus under Section 68, the burden shifts to the Assessing Officer to rebut the same with cogent material. In the absence of any independent enquiry or evidence of cash movement, the addition cannot be sustained merely on suspicion or third-party reports.

Therefore, the deletion of Rs. 5 crore addition was confirmed. The cross-objection filed by the assessee on legal grounds was kept open and not adjudicated.

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