Sangameshwar Coffee Estates Limited Vs Asssitant/ Deputy Commissioner (ITAT Bangalore)
Bangalore ITAT Deletes ₹15-Lakh Section 68 Addition: Managing Director’s Bank Statement Established Identity, Genuineness and Creditworthiness
The assessee-company received a loan of ₹15 lakh from its Managing Director, S. Appadurai, through banking channels. The AO treated it as unexplained cash credit under Section 68, holding that the assessee had failed to establish the lender’s identity, creditworthiness and the genuineness of the transaction. The CIT(A) upheld the addition even after considering the lender’s confirmation, bank statement and income-tax return.
The Bangalore ITAT found that the company’s annual report conclusively established that the lender was its Managing Director and therefore his identity stood proved. The transaction was supported by the company’s books, receipt voucher, confirmation and bank entries. The fact that the company had received total loans of ₹1.90 crore from its directors further supported the genuineness of the transaction.
Regarding creditworthiness, the lender’s bank statement showed receipt of ₹16.23 lakh from HDFC Standard Life Insurance on 5 March 2020, resulting in a balance of ₹18.86 lakh. Immediately before advancing the loan, his bank balance was ₹17.12 lakh, which was sufficient to fund the ₹15-lakh transfer.
Since the assessee had satisfactorily proved all three ingredients required under Section 68—identity, creditworthiness and genuineness—the Tribunal held that there was no basis for sustaining the addition and deleted it entirely.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. The assessee has filed the present appeal against the impugned order dated 16.10.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”] for the assessment year 2020-21.
2. The revised grounds of appeal filed by the assessee are reproduced as follows: –
1. That the learned Assessing Officer erred in law and on facts in treating the loan of ₹15,00,000 received from Sri S. Appadurai as unexplained credit under section 68 when contemporaneous primary evidence (bank credit entry and receipt voucher was placed on record by the appellant).
2. That the learned AO failed to make reasonable and independent inquiries (including summoning the creditor under section 131 or seeking his bank-ITR records) before making the addition, thereby acting mechanically and without application of mind.
3. That the AO misapplied the legal principles relating to burden of proof under section 68 and ignored binding precedents which require the AO to test and corroborate the evidence produced by the assessee.
4. That the learned AO erred in invoking section 115BBE and initiating penalty proceedings under section 271AAC(1) as consequential to an unsustainable addition; in any event, penalty is excessive and without proper application of mind.
5. That the AO failed to appreciate the disclosure in the appellant’s Annual Report 2019-20 and the reporting in ITR (column 4(a)(iii)) which corroborate the existence and accounting of director loans.
6. That the order is arbitrary, contrary to law, and prejudicial to the interest of the appellant.
3. The solitary grievance of the assessee is against the addition of Rs. 15 lakh by treating the loan received from the Managing Director as unexplained credit under section 68 of the Act.
4. The brief facts of the case are that for the year under consideration, the assessee filed its return of income on 09.12.2020, declaring a total income of Rs. NIL. The return filed by the assessee was selected for scrutiny, and statutory notices under sections 143(2) and 142(1) were issued and served on the assessee. During the assessment proceedings, it was observed that the assessee had taken a secured loan from its Directors of Rs. 1.90 crore, out of which Rs. 15 lakh was taken in the year under consideration. In response to the show-cause notice, the assessee only submitted voucher details of one of the directors, Mr S. Appadurai. The assessee submitted that the loan of Rs. 15 lakh was received from Mr S. Appadurai by way of cheque and the said borrowing was through the banking channel, and the loan was not borrowed in any other form. In support of its contention, the assessee submitted the proof of receipt voucher and bank statement.
5. The Assessing Officer (“AO”), vide order dated 08.09.2022 passed under section 143(3) r.w.s. 144B of the Act, disagreed with the submissions of the assessee and held that the onus of proving identity, creditworthiness and genuineness of the transaction with regard to the unsecured loan of Rs. 15 lakh received from Mr S. Appadurai is on the assessee. The AO held that the assessee has failed to discharge the said onus. Accordingly, the amount of Rs. 15 lakh received by the assessee was treated as unexplained income under section 68 of the Act and added to the total income of the assessee.
6. During the appellate proceedings, the learned CIT(A) sought a remand report from the AO. In its remand report, the AO, after considering the confirmation letter from Mr S. Appadurai and part of the bank statement showing the particular transaction of the impugned loan and the relevant ITR copy submitted, stated that the documents produced do not prove the capacity of the lender to lend an amount of Rs. 15 lakh to the assessee. Thus, the AO submitted that the creditworthiness of the loan lender and the genuineness of the transaction are not proved. Vide its rejoinder to the remand report, the assessee objected to the findings of the AO, doubting the creditworthiness of the lender and the genuineness of the transaction. After considering the remand report by the AO and rejoinder thereto by the assessee, the learned CIT(A) dismissed the ground raised on this issue and upheld the addition of Rs. 15 lakh made by the AO.
7. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the loan of Rs. 15 lakh was received by the assessee company, during the year under consideration, from its Managing Director Mr. S. Appadurai. The learned AR submitted that in this regard, the Managing Director also issued a confirmation letter on 01.10.2022, which was filed before the lower authorities. As regards creditworthiness of the Managing Director to lend Rs. 15 lakh with the assessee, the learned AR by referring to the bank statement of bank account of Mr. S. Appadur ai maintained with Canara Bank forming part of the paper book, submitted that on 05.03.2020, Mr. S. Appadurai received Rs. 16,23,125/- and from the said amount Rs. 15 lakh was transferred to the assessee company on 11.03.2022.
8. On the other hand, the learned Departmental Representative vehemently relied upon the order passed by the lower authorities.
9. We have considered the submission of both sides and perused the materials available on record. In the present case, there is no dispute regarding the fact that the assessee has taken unsecured loans from its Directors of Rs. 1.90 crore, out of which only Rs. 15 lakh was taken during the year under consideration. As per the assessee, the said amount was received from none other than its Managing Director, Mr S. Appadurai. The fact that Mr S. Appadurai was Managing Director of the assessee company during the year under consideration is sufficiently evident from the annual report of the assessee for the year under consideration, which forms part of the paper book. Thus, the identity of the loan lender has been sufficiently established by the assessee.
10. As regards the genuineness of the transaction, we are of the considered view since the transaction was between the company and its Managing Director, the genuineness of the transaction cannot be doubted and the same has also been sufficiently established, as the assessee apart from taking a loan of Rs. 15 lakh from its Managing Director has taken in total a loan of Rs. 1.90 crore from all its Directors.
11. As regards the creditworthiness of the loan lender, from the perusal of the bank statement of Mr. S. Appadurai forming part of the paper book from Pages 70-103, we find that on 05.03.2020 Mr. S. Appadurai received Rs. 16,23,125/- from HDFC Standard Life Insurance, which resulted in a total balance of Rs. 18,85,881/- in his bank account. We further find that immediately prior to transferring Rs. 15 lakh from his bank account to the assessee company, Mr. S. Appadurai had a balance of Rs. 17,11,935/ – in his bank account. Therefore, from the perusal of the bank statement of the loan lender, we are of the considered view that there was sufficient balance in his account for lending Rs. 15 lakh to the assessee as a loan. Therefore, we are of the considered view that the assessee has also satisfactorily proved the creditworthiness of the loan lender.
12. As the assessee has established the identity and creditworthiness of the loan lender and genuineness of the transaction, we do not find any basis in upholding the addition of Rs. 15 lakh made under section 68 of the Act, and thus the same is deleted. As a result, the grounds raised in the assessee’s appeal are allowed.
13. In the result, the appeal by the assessee is allowed.
Order pronounced in the open court on 17-Aug-2026.
