Loan Through Banking Channels Cannot Be Treated Bogus: ITAT Mumbai:

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) held that an addition under Section 68 of the Income Tax Act, 1961, cannot be sustained where the assessee has duly established the identity, creditworthiness, and genuineness of the loan transaction through documentary evidence and banking records. A Bench comprising Vice President Saktijit Dey and Accountant Member Prabhash Shankar deleted the addition of Rs 30 lakh made against assessee Bihari Parmanand Kandhari for AY 2009-10.

The Assessing Officer had reopened the assessment under Section 147 based on information received from the Investigation Wing, alleging that the assessee had obtained accommodation entries in the form of unsecured loans from M/s Ahuja Properties & Associates. During reassessment proceedings, the AO treated the unsecured loan of Rs. 30 lakh as an unexplained cash credit under Section 68 on the ground that the lender was allegedly engaged in providing accommodation entries.

Before the ITAT, the assessee submitted that the loan was genuine and had been received and repaid through proper banking channels during the same financial year. The assessee also furnished documentary evidence, including bank statements, income tax returns, ledger accounts, loan confirmations, and an affidavit of Shri Jagdish Bhagwandas Ahuja confirming the transaction.

“The documentary evidences furnished by the assessee establish not only the identity of the creditor but prove the creditworthiness and genuineness of the transactions, which are crucial ingredients u/s. 68 of the Act.”

The Tribunal noted that in response to summons issued under Section 131, the lender had confirmed the loan transaction. It further observed that during remand proceedings, the Principal Officer of M/s Ahuja Properties & Associates again affirmed the genuineness of the loan through affidavit.

The Bench held that merely because the lender did not personally appear before the Assessing Officer or because certain original books and bank statements were not produced, the transaction could not automatically be treated as bogus when substantial documentary evidence was already available on record.

The Tribunal also took note of the fact that the entire loan amount had been repaid within a short span during the same year and no amount remained outstanding.

“The fact on record that the loan availed of Rs.30 lacs was repaid during the very same year and within a short span itself leaves no room for making the addition u/s. 68 of the Act.”

Observing that the original assessment under Section 143(3) had already accepted the loan transaction and that the reassessment was triggered merely on third-party search information despite supporting evidence being available, the Tribunal held that the assessee had successfully discharged the burden cast under Section 68.

Thus, the ITAT directed the deletion of the addition of Rs. 30 lakh and allowed the appeal filed by the assessee.

To Read Full Order, Download PDF Given Below.