Case Law Details
Mahendra Enterprise Firm Vs ACIT (ITAT Mumbai)
ITAT Deletes Section 68 Addition Because Assessee Repaid Loan With Interest and Deducted TDS; Section 68 Addition Deleted Because Assessee Proved Identity, Creditworthiness and Genuineness: ITAT; ITAT Holds Addition Cannot Survive Because Revenue Relied Only on Suspicion Despite Documentary Evidence; Unsecured Loan Addition Deleted Because Assessee Also Explained Source of Source, Rules ITAT; ITAT Deletes Cash Credit Addition Because Loan Confirmation and Repayment Established Genuineness; Section 68 Addition Unsustainable Because Interest Payment Was Accepted by Revenue: ITAT; ITAT Deletes Rs. 50 Lakh Addition Because Assessee Produced Complete Documentary Evidence; No Section 68 Addition Because Subsequent Loan Repayment Supported Genuine Transaction: ITAT
The appeal before the ITAT Mumbai arose from the order passed by the National Faceless Appeal Centre (NFAC)/Commissioner of Income Tax (Appeals) for Assessment Year 2017-18 relating to an addition made under Section 68 of the Income Tax Act, 1961 in respect of an unsecured loan received by the assessee.
During the relevant assessment year, the assessee had received an unsecured loan of Rs. 50 lakhs from an individual lender, namely Smt. Smita M. Shah. During the assessment proceedings, the assessee furnished documentary evidence to establish the identity and creditworthiness of the lender and the genuineness of the loan transaction. The lender had also confirmed the transaction.
The Tribunal noted that the assessee had not only explained the source of the loan but had also established the “source of source” of the funds. It was further observed that the assessee had subsequently repaid the loan amount along with interest after deducting tax at source (TDS). The interest expenditure claimed by the assessee was not disputed by the Revenue authorities, and the lender had also offered the corresponding interest income to tax.
The Tribunal considered these factual aspects while examining whether the addition under Section 68 could be sustained. It observed that by producing the relevant documentary evidence, the assessee had prima facie discharged the onus cast upon it under Section 68 of the Act. The Tribunal further held that repayment of the loan in the subsequent year strengthened the genuineness of the transaction.
While deciding the issue, the Tribunal relied upon the judgment of the Gujarat High Court in PCIT v. Ambe Trade (P.) Ltd. [2022] 145 taxmann.com 27 (Guj.), wherein it was held that where the assessee had furnished material showing the identity of the lenders and had repaid the loans in subsequent years, no addition could be made under Section 68. The High Court had observed that repayment of the loan supported the conclusion that the transaction was a genuine business transaction and the genuineness of the loan could not be doubted merely on suspicion.
The Tribunal also referred to the Gujarat High Court decision in Deputy Commissioner of Income-tax v. Rohini Builders [2003] 127 Taxman 523 (Gujarat), where similar principles were applied in relation to unexplained cash credit additions.
After considering the material available on record and the judicial precedents cited, the Tribunal concluded that the addition of Rs. 50 lakhs made by the Assessing Officer under Section 68 and sustained by the Commissioner (Appeals) was unsustainable. The Tribunal held that once the assessee had discharged the burden cast under Section 68 by proving the identity and creditworthiness of the lender, genuineness of the transaction, and source of source, the addition could not be sustained merely on doubts or suspicion.
Accordingly, the Tribunal deleted the addition of Rs. 50 lakhs made under Section 68 and allowed the appeal of the assessee.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been preferred by the Assessee against the order dated 20.06.2025, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2017-18.
2. In the instant case, the Assessee during the assessment year under consideration had taken a loan of 50,00,000/- from Smt. Smita M. Shah, which has also been confirmed by the lender. The Assessee admittedly, before the authorities below, has also filed documentary evidence to prove the identity and creditworthiness of the lender and genuineness of loan transaction. Further, it is also a fact that the Assessee not only proved the source of loan but also the source of source of loan Further it is a fact that the Assessee subsequently repaid the loan amount along with the interest while deducting TDS and the interest expenses claimed has not been disputed by either of the authorities below and interest income has also been offered by the lender. Thus, considering the aforesaid factual aspects, specifically to the effect that the Assessee by producing the relevant documents prima facie discharged its onus cast u/s. 68 of the Act and by making repayment strengthen the genuineness of the transaction, as also held by Hon’ble Gujrat High Court in the case of PCIT vs. Ambe Trade (P) Ltd. (2022) 145 taxmann.com 27 (Guj.), by holding inter alia as under:
“Where assessee took loan from two parties and furnished the requisite material showing identity of loan givers and repaid the loan in subsequent year, then no addition could be made on account of such loan”
3. According to the Hon’ble High Court, where the Assessee was not a beneficiary of the loan received by it and the loan was repaid by the Assessee in the subsequent year, then it led to unacceptable conclusion that the impugned transaction was a business transaction between the Assessee and the loan parties and therefore the loan could not be doubted for its genuineness.
4. We further observe that the Hon’ble Gujrat High Court in the case of Deputy Commissioner of Income-tax vs. Rohini Builders [2003] 127 Taxman 523 (Gujarat) [19-03-2001], has also held on the similar footing, as held in the case of Ambe Trade Corp (P) Ltd. (supra).
5. Thus, on the aforesaid analyzations, the addition of 50,00,000/- being unexplained credit u/s. 68 of the Act made by the AO vide assessment order dated 30.12.2019 u/s. 143(3) of the Act and sustained by the learned Commissioner vide impugned order under consideration, is unsustainable and therefore the same is deleted.
6. In the result, appeal filed by the Assessee is allowed.
Order pronounced in open Court on 11.05.2026
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