ITAT Surat Deletes Section 68 Addition on Loan Repaid Within Same Financial Year

Shabbir Husainibhai Rajkotwala Lifeline Hospital Vs ITO (ITAT Surat)

The appeal was filed by the assessee against the order dated 17.11.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, arising from a reassessment order passed under Section 147 read with Section 144B of the Income-tax Act, 1961 for Assessment Year 2018-19.

The assessee, an individual and a doctor by profession, had filed the return of income declaring total income of Rs. 2,76,600/-. The assessment was reopened by issuance of notice under Section 148 on 09.04.2022 on the ground that there were substantial financial transactions not reflected in the return of income. During the reassessment proceedings, the assessee explained the financial transactions. However, the Assessing Officer made an addition of Rs. 5,00,000 under Section 68 of the Act in respect of an unsecured loan received from Shri Naranlal Soni and also subjected the amount to tax under Section 115BBE.

The CIT(A) confirmed the addition. According to the appellate order, the lender had deposited cash of Rs. 5,01,000 on 05.01.2018 and thereafter issued a cheque of Rs. 5,00,000 to the assessee. The CIT(A) also noted that the balance in the lender’s bank account before the transaction was only Rs. 143.75 and that the lender’s return of income disclosed total income of Rs. 4.53 lakh, leading to confirmation of the addition.

Before the Tribunal, the assessee challenged the addition under Section 68, contending that the loan had been repaid within the same assessment year, that the source of source had been established, and that the addition was contrary to the decisions of the Gujarat High Court in CIT v. Ayachi Chandrashekhar Narsangji and PCIT v. Merrygold Gems (P.) Ltd.

To establish the lender’s creditworthiness, the assessee submitted that Shri Naranlal Kanaiyalal Soni was a regular income-tax assessee who had filed ITR-4 for Assessment Years 2016-17 and 2017-18, declaring gross taxable income of Rs. 3,47,650 and Rs. 4,53,505 respectively. It was argued that the Assessing Officer had considered only the IDBI Bank account and had ignored another bank account maintained by the lender with Punjab National Bank, Bardoli.

The assessee produced the Punjab National Bank statement showing cash withdrawals of Rs. 3,00,000 on 03.01.2018 and Rs. 15,000 on 04.01.2018, aggregating Rs. 3,15,000. According to the assessee, these withdrawals were deposited into the lender’s IDBI Bank account and were used for issuing the cheque of Rs. 5,00,000 to the assessee on 05.01.2018. The assessee further submitted that the Assessing Officer had not considered the lender’s business income disclosed in the income-tax returns and had reached an erroneous conclusion by relying on only one bank statement.

The assessee also produced the lender’s income-tax returns for Assessment Years 2016-17 and 2017-18 and submitted that the loan was received through banking channels by cheque on 05.01.2018 and repaid through RTGS on 26.02.2018 within the same financial year. Reliance was placed on the Gujarat High Court decision in PCIT v. Merrygold Gems (P.) Ltd.

The Departmental Representative did not dispute that the loan had been repaid through RTGS.

The Tribunal observed that it was an undisputed fact that the assessee had received the loan through banking channels on 05.01.2018 and repaid it through RTGS on 26.02.2018, as reflected in the creditor’s bank statement. The Tribunal noted that the jurisdictional Gujarat High Court in PCIT v. Merrygold Gems (P.) Ltd. had held that where a loan received by the assessee was returned within the same financial year, the appellate authorities had rightly deleted the addition made under Section 68 in respect of such loan.

Following the jurisdictional High Court precedent, the Tribunal deleted the addition made under Section 68 of the Act. The grounds raised by the assessee were allowed, and the appeal was allowed.

Cases Discussed

• PCIT v. Merrygold Gems (P.) Ltd. (Gujarat High Court), [2024] 164 taxmann.com 764 (Gujarat)
• CIT v. Ayachi Chandrashekhar Narsangji (Gujarat High Court), (2014) 42 taxmann.com 251 (Guj)

FULL TEXT OF THE ORDER OF ITAT SURAT

This appeal is filed by the assessee as against the appellate order dated 17.11.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the reassessment order passed under section 147 r.w.s 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2018-19.

2. Brief facts of the case are, the assessee is an individual and doctor by profession. The assessee filed his return of income for the A.Y. 2016-17 on 03.08.2016 declaring total income of Rs. 2,76,600/-. Since, there was huge financial transaction which was not reflecting in the return of income, the assessment was reopened by issuing notice u/s 148 of the Act on 09.04.2022. During the reassessment proceedings, the assessee explained about the financial transactions. However, the Assessing Officer confirmed the additions of Rs. 5,00,000/- being unsecured loan u/s 68 of the Act received from Mr. Naranlal Soni. The AO also taxed the income u/s 115BBE of the Act.

3. Aggrieved against the reassessment order, assessee filed an appeal before ld. CIT(A) who has confirmed the addition on the ground that the lender made cash deposits of Rs. 5,01,000/- and on 05.01.2018, then issued cheque of Rs. 5,00,000/- to the assessee herein. Further the bank balance in the lender’s bank account was Rs. 143.75/- only and lenders return of income shown total income of Rs. 4.53 lakhs only. Therefore, ld. CIT(A) confirmed the addition made by the Assessing Officer.

4. Aggrieved against the appellate order, assessee is in appeal before us, raising following Grounds of Appeal:-

1. The Ld. CIT(A) has erred in law and on facts in upholding the addition of Rs. 5,00,000/ – made by the Ld. AO u/s 68 of the Income-tax Act, 1961 disregarding the fact that same is duly repaid within the same AY.

2. The Ld. CIT(A) has erred in law and on facts in upholding the addition of Rs. 5,00,000/- made by the Ld. AO u/s 68 of the Income-tax Act, 1961 contrary to the ratio laid down by the Hon’ble Gujarat High Court in the case of CIT v. Ayachi Chandrashekhar Narsangji (2014) 42 taxmann.com 251 (Guj) and PCIT v. Merrygold Gems (P.) Ltd. (2024) 164 taxmann.com 764 (Gujarat).

3. The Ld. CIT(A) has erred in law and on facts in upholding the addition of Rs. 5,00,000/- made by the Ld. AO u/ s 68 of the Income-tax Act, 1961 despite source of source was duly proved.

4. The Appellant reserves the right to add, alter, amend or modify any of the grounds of appeal during the course of appellant proceedings.

5. Ld. Counsel for the assessee submitted before us, the credit­worthiness of the lender as follows:-

“Shri Naranlal Kanaiyalal Soni, PAN AWXPS1749P is regular tax payers and have filed his income tax return as under:-

Shri Naranlal Soni has filed ITR-4 for both the Years. The A.O. has taken into considered transections mentioned in the Passbook of IDBI Bank Ltd., Bardoli Branch. Shri Naranlal Soni has another Bank account with Punjab National bank, Bardoli bearing Account number 6699000100001866. We have attached a copy of Bank Statement for your perusal. A copy of IDBI Bank Ltd Statement is already re­produced in the Order and hence not attached. It is observed that Shri Naranlal Soni has maintained sufficient balance in Bank account with Punjab National Bank Ltd. Moreover, Shri Naranlal Soni has made Cash withdrawals of Rs. 3,00,000/- on 03-01­2018 and further on 04-01-2018 Rs. 15,000/-.

This cash withdrawals were deposited in IDBI Bank Ltd. account to Make payment of Rs. 5,00,000/- on 05/01/2018 to Dr. Shabbir Rajkotwala

The assessee wish to draw your kind attention to the fact mentioned in Para No 3.5 and 3.6. The A.O. has not taken into consideration Business Income declared in the Return of Income filed by Shri Naranlal Soni. The A.O. has decided creditworthiness based on only One Bank Statement.

A.O. has reached to erroneous conclusion because of the non-consideration of below mentioned two vital information

{a} Non-consideration of Bank Statement of Punjab National bank, Bardoli

{b} Business income declared for A.Y. 2016-2017 Rs. 3,47,650/- & 2017-2018 Rs. 4,53,505/- in his return of income filed.

Therefore, the assessee has justified creditworthiness of Shri Naranlal Soni taking into account

…… Cash withdrawals on the nearby dated from Punjab National Bank Rs. 3,00,000/- & Rs. 15,000/-

…….. Business Income declared in his return of Income filed.”

5.1 Further, ld. Counsel filed before us, the return of income filed by the lender, Mr. Naranlal Soni for the A.Ys. 2016-17 85 2017-18. Ld Counsel further submitted that the assessee availed loan by way of cheque on 05.01.2018 and repaid the loan through RTGS on 26.02.2018 within the same financial year. Thus claimed that no question of addition to be made u/s 68 of the Act on the loan repaid within the financial year. Ld. Counsel relied upon the jurisdictional High Court Judgment in the case of PCIT vs. Merrygold Gems (P.) Ltd. reported in [2024] 164 taxmann.com 764 (Gujarat).

6. Ld. Sr. DR appearing for the Revenue could not dispute the repayment of loan by the assessee through RTGS mode.

7. We have given our thoughtful consideration and perused the materials available on record. It is undisputed fact that the assessee borrowed the loan through banking channel on 05.01.2018 and repaid the same through RTGS on 26.02.2018 which is reflecting in the bank statement of the creditor, Mr. Naranlal Soni. The Hon’ble jurisdictional High Court judgment in the case of Merrygold Gems (P.) Ltd. (supra) held that where amount of loan received by the assessee was returned within same financial year, appellate authorities had rightly deleted addition made under section 68 of the Act in respect of such loan.

Respectively, following above jurisdictional High Court precedent, we have no hesitation in deleting the addition made u/s 68 of the Act. Thus, the Grounds raised by the assessee are hereby allowed.

8. In the result, the appeal filed by the assessee is allowed.

Order is pronounced under provision of Rule 34 of ITAT Rules, 1963 on 10-07-2026