Karunakaran Leela Vs ITO (ITAT Chennai)
In the case of Karunakaran Leela vs. ITO, the ITAT Chennai reviewed the addition of ₹36.50 lakh made under Section 68 of the Income Tax Act for unexplained cash credits linked to unsecured loans. The assessee had obtained loans totaling ₹120 lakh from 17 creditors during AY 2018-19. Upon examination, the Assessing Officer (AO) observed that only three of the five creditors responded to notices issued under Section 133(6). The AO determined that the creditors lacked sufficient income to justify the loans and highlighted suspicious cash deposits in their accounts on the same dates when loans were advanced. Consequently, the AO treated ₹36.50 lakh as unexplained income.
On appeal, the CIT(A) upheld the addition for ₹36.50 lakh, rejecting the assessee’s claim that the transactions occurred through banking channels and were backed by PAN details. The tribunal, upon further review, found that the assessee failed to establish the creditors’ creditworthiness through adequate evidence, such as income tax returns or proof of financial capacity. Despite the contention that Section 68 applies only to cash credits, the tribunal clarified that the provision is applicable irrespective of whether transactions occurred in cash or through banks. The tribunal remanded the case back to the AO, granting the assessee another opportunity to substantiate the loans with proper documentation.
