Saraswati Buildcon Vs ITO (ITAT Mumbai)
SECTION 68: ₹10 LAKH LOAN NEED NOT FACE A FULL RETRIAL—ONLY ₹5.50 LAKH CASH DEPOSITS SENT BACK FOR VERIFICATION
₹10 lakh unsecured loan questioned
The assessee, a partnership firm engaged in the business of builders & developers, filed its return declaring total income of ₹180 after claiming deduction u/s 80-IBA.
During scrutiny assessment, the AO examined an unsecured loan of ₹10 lakh received from Shri Pravin J. Patil on 06.11.2019.
To establish the transaction, the assessee furnished the lender’s PAN, confirmation of account, return of income, computation of income & bank statement. The loan was received through normal banking channels.
The AO, however, noticed four cash deposits of ₹1 lakh, ₹1.50 lakh, ₹1.50 lakh & ₹1.50 lakh, aggregating to ₹5.50 lakh, in the lender’s bank account before the loan was advanced.
Principally doubting the lender’s creditworthiness, the AO treated the entire loan of ₹10 lakh as unexplained cash credit u/s 68.
Low returned income raises Revenue’s suspicion
The CIT(A) noted that the lender had declared total income of only ₹4,55,460 against turnover of approximately ₹19.25 lakh. He had also purchased a motor vehicle during the relevant year.
Considering the lender’s income profile, motor-vehicle purchase & cash deposits immediately preceding the loan, the CIT(A) agreed with the AO that the lender’s financial capacity had not been satisfactorily established.
The addition of ₹10 lakh was accordingly confirmed.
118-day delay explained by partner’s illness
The assessee filed its appeal before the ITAT with a delay of 118 days.
It explained that Shri Jeetu Ramchand Dhanwani, the key partner responsible for the firm’s taxation & appellate matters, suffered from a serious hepatology-related illness. He remained hospitalised & under continuous medical supervision.
The explanation was supported by a notarised affidavit & medical records. Immediately after his health stabilised, steps were taken to file the appeal.
Considering the medical circumstances & supporting evidence, the ITAT held that the assessee was prevented by sufficient cause from filing the appeal within time. The delay was condoned & the appeal admitted for adjudication.
Identity & transaction were substantially documented
Before the Tribunal, the assessee produced loan confirmations for FYs 2017-18, 2018-19 & 2019-20, showing that the lender had financial dealings with the assessee over more than one year.
The assessment order itself acknowledged the production of the lender’s confirmation, ITR, computation & bank statement.
Thus, the Revenue’s dispute was not fundamentally about the lender’s identity or the fact that ₹10 lakh moved through banking channels. The controversy was confined to creditworthiness, particularly the source of the cash deposits of ₹5.50 lakh preceding the transfer.
The assessee explained that Shri Pravin J. Patil carried on the retail business of supplying building materials. The cash deposits allegedly represented his business receipts & accumulated savings.
It requested an opportunity to produce the lender’s cash-flow statement & supporting evidence before the AO.
Banking channel alone is not conclusive
The Revenue correctly contended that mere receipt of money through banking channels does not automatically establish a genuine loan u/s 68.
The assessee must establish the creditor’s identity, capacity to advance the money & genuineness of the transaction. Where cash is deposited shortly before the loan is transferred, the AO is entitled to enquire into its source.
At the same time, suspicion concerning a part of the lender’s bank deposits does not permit the authorities to ignore relevant documents or expand the enquiry beyond the actual area of doubt.
Here, the precise matter requiring examination was the source of ₹5.50 lakh cash deposited into the lender’s account, not a fresh investigation into every aspect of the ₹10 lakh loan.
Limited remand—not a fishing expedition
The ITAT restored the matter to the AO solely for verifying the source of the four cash deposits aggregating to ₹5.50 lakh in the lender’s bank account.
The assessee was directed to furnish the lender’s cash-flow statement for the relevant period together with evidence supporting the alleged business receipts or past savings.
The AO was directed to examine only this material & determine its effect upon the lender’s creditworthiness after providing the assessee a reasonable opportunity of hearing.
The Tribunal expressly restricted the scope of remand. The AO cannot reopen issues unrelated to the source of the ₹5.50 lakh cash deposits or convert the restored proceedings into a general reinvestigation of the loan.
The assessee was also directed to cooperate, furnish the documents promptly & avoid unnecessary adjournments.
Decision
The addition of ₹10 lakh u/s 68 was not finally deleted or confirmed.
The limited question concerning the source of cash deposits of ₹5.50 lakh & their bearing on the lender’s creditworthiness was restored to the AO for verification.
The assessee’s appeal was accordingly allowed for statistical purposes, with the remand strictly confined to the identified cash deposits.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, MUMBAI
This appeal by the assessee is directed against the order passed by the NFAC, Delhi [in short, “Ld. CIT(A)], under section 250 of the Income-tax Act, 1961 (in short, “the Act”) dated 07.10.2025, for Assessment Year 2020-21, arising out of the assessment order passed by AUITD (in short, “Ld. AO”), under section 143(3) r.w.s. 144B of the Act dated 21.09.2022.
2. At the outset, the Registry has pointed out that the appeal is filed with a delay of 118 days. The assessee has filed a petition for condonation of delay supported by a notarized affidavit of its partner. It has been explained that one of the key partners, Shri Jeetu Ramchand Dhanwani, who was actively looking after the affairs of the firm including taxation and appellate matters, was suffering from a serious hepatology-related ailment and remained hospitalized and under continuous medical supervision. The affidavit further states that immediately after stabilization of his health, necessary steps were taken for filing the appeal. The medical records placed along with the affidavit corroborate the hospitalization.
We have considered the explanation furnished by the assessee and the material placed on record. Considering the medical circumstances explained in the affidavit and the supporting records, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the prescribed period. Accordingly, the delay of 118 days is condoned, and the appeal is admitted for adjudication on merits.
3. The assessee is a partnership firm engaged in the business of builders and developers. For A.Y. 2020-21, the assessee filed its return of income on 09.01.2021 declaring total income of Rs.180/- after claiming deduction under section 80-IBA of the Act. The case was selected for scrutiny under CASS and assessment was completed under section 143(3) r.w.s. 144B of the Act on 21.09.2022. The controversy before us is confined to the addition of Rs.10,00,000/- under section 68 of the Act, representing unsecured loan received by the assessee from Shri Pravin J. Patil during F.Y. 2019-20. During assessment proceedings, the assessee furnished confirmation of account, ITR, computation of income and bank statement of the lender. The Ld. AO noticed that the assessee had received Rs.10,00,000/- from the lender on 06.11.2019. The Ld. AO further noticed cash deposits aggregating to Rs.5,50,000/- in the lender’s bank account prior to advancement of the loan and, principally on the issue of creditworthiness, treated the loan as unexplained under section 68. The Ld. CIT(A) upheld the addition, observing inter alia that the lender had declared total income of Rs.4,55,460/-, turnover of Rs.19,24,780/- and had also purchased a motor vehicle during the relevant year. The Ld. CIT(A), therefore, concurred with the Ld. AO that the creditworthiness of the lender had not been satisfactorily established.
4. The Ld. AR submitted that the assessee has filed a paper book comprising pages 1 to 28. He drew our attention to the loan confirmations of Shri Pravin J. Patil for F.Ys. 2017-18, 2018-19 and 2019-20, enclosed at APB pages 3 to 5, to demonstrate that the lender had financial transactions with the assessee over more than one financial year. The Ld. AR further submitted that, so far as the year under consideration is concerned, the assessee received only Rs.10,00,000/- through normal banking channel. The identity of the lender and the factum of the transaction were supported by the PAN, ITR, loan confirmation and bank statement. The assessment order itself records that the assessee furnished the confirmation, ITR, computation of income and bank statement of Shri Pravin J. Patil.
5. The Ld. AR contended that the dispute raised by the Revenue is essentially confined to the creditworthiness of the lender, particularly because cash aggregating to Rs.5,50,000/- was deposited in the lender’s bank account before advancement of the loan. It was submitted that the lender was engaged in the retail business of supplying building material and the cash deposits represented his business receipts/past savings. The Ld. AR, therefore, prayed that an opportunity may be granted to substantiate the source of the aforesaid cash deposits by producing the cash-flow statement of the loan creditor and other supporting evidence before the Ld. AO.
6. Per contra, the Ld. DR relied upon the orders of the revenue authorities. The Ld. DR submitted that in proceedings under section 68 of the Act, the initial onus rests upon the assessee to establish, inter alia, the creditworthiness of the creditor and genuineness of the transaction. Merely routing the amount through banking channels would not, by itself, establish the financial capacity of the lender.
7. The Ld. DR further submitted that the Ld. AO had specifically noticed cash deposits of Rs.1,00,000/-, Rs.1,50,000/-, Rs.1,50,000/- and Rs.1,50,000/-, aggregating to Rs.5,50,000/-, in the lender’s bank account before the loan was advanced. The Ld. AO had consequently disputed the lender’s creditworthiness. The assessment order also records the Ld. AO’s finding that the assessee was required to establish the creditworthiness of the lender with cogent and credible evidence.
8. We have heard the rival submissions and perused the material available on record. The limited controversy requiring examination is the creditworthiness of Shri Pravin J. Patil, particularly the source of the cash deposits aggregating to Rs.5,50,000/- appearing in his bank account prior to advancement of the loan of Rs.10,00,000/- to the assessee. The assessment order itself records the four cash deposits aggregating to Rs.5,50,000/- and the subsequent transfer of Rs.10,00,000/- to the assessee.
Considering the material placed before us, we deem it appropriate to set aside this limited issue to the file of the Ld. AO solely for verification of the source of the cash deposits aggregating to Rs.5,50,000/- in the bank account of the loan creditor, Shri Pravin J. Patil. The assessee is directed to furnish before the Ld. AO the cash-flow statement of the loan creditor for the relevant period along with such supporting evidence as may be required to explain the source of the aforesaid cash deposits.
9. The Ld. AO shall verify the cash-flow statement and supporting evidence and adjudicate only this specific aspect concerning the source of the cash deposits of Rs.5,50,000/- and the consequential creditworthiness of the lender, in accordance with law, after granting reasonable opportunity of being heard to the assessee. The assessee is directed to cooperate with the proceedings and furnish the requisite documents without seeking unnecessary adjournments.
We make it clear that the matter is restored to the Ld. AO for the aforesaid specific and limited purpose only, and the scope of the remand shall not extend to issues which are not the subject matter of this verification.
10. In the result, the appeal of the assessee bearing ITA No. 3956/Mum/2026 is allowed for statistical purposes.
Order pronounced in the open court on 08th day of September 2026.
