Repayment Proves Genuineness – Unsecured Loans Accepted, Addition Removed

AUM Citiscapes LLP Vs ITO (ITAT Pune)

Assessee, an LLP engaged in real estate business, declared NIL income. AO made multiple additions including huge additions to closing stock & capitalization of expenses, apart from addition u/s 68 at Rs.17.90 lakh for unsecured loans from five persons.

CIT(A) deleted all additions except the u/s 68 addition of Rs.17.90 lakh. Before Tribunal, Assessee furnished complete details—PAN, address, confirmations, cheque numbers, ledger accounts, repayment details, interest payments with TDS compliance. Out of Rs.17.90 lakh, Rs.13.90 lakh stood fully repaid; remaining Rs.4 lakh was supported by confirmations & identity details.

Tribunal relied on the jurisdictional Bombay High Court judgment in PCIT vs Skylark Build (24.10.2018) which held that where loans have been repaid & creditors are identifiable, genuineness stands established even if initial inference was doubtful. Examining material in paper book, Tribunal held that identity, creditworthiness & genuineness were satisfactorily proved,& Revenue brought no contrary evidence. Accordingly, the addition u/s 68 of Rs.17.90 lakh was deleted, reversing CIT(A)’s finding. Appeal allowed in full.

FULL TEXT OF THE ORDER OF ITAT PUNE

This appeal at the instance of the assessee is directed against the order of National Faceless Appeal Centre (NFAC)/ Commissioner of Income Tax (Appeals), Delhi [“CIT(A)”], dated 04/03/2025 passed under section 250 of the Income Tax Act, 1961 (“Act”), which is arising out of assessment order u/s. 143(3) r.w.s. 143(3A) & 143(3B) of the Act, dated 01/03/2021 for the Assessment Year (AY) 2018-19.

2. Assessee has raised five grounds of appeal, but the sole grievance is against the finding of Ld.CIT(A) confirming the addition u/s. 68 of the Act for unexplained unsecured loan of Rs. 17.90 Lac received from five persons.

3. Brief facts of the case are that assessee is a limited liability partnership and NIL income declared in the return of income for A.Y. 2018-19 furnished on 08/08/2018. Case selected for complete scrutiny on two issues, namely ^„income from real estate business‟ and ^„unsecured loans‟. Various details were called for, to which, partial reply was made. Ld.AO concluded the assessment making addition u/s. 68 of the Act at Rs. 11,31,98,464/-; and addition of Rs.5,67,38,016/- towards capitalization of expenses and addition of Rs. 44,04,07,644/- for the difference in closing stock of immediately preceding year with the opening stock of the year under consideration.

4. The assessee challenged these additions before the Ld.CIT(A) and majorly succeeded. Ld.CIT(A) after duly
considering remand report filed by the Ld.AO except sustaining of addition u/s. 68 of the Act for unsecured loans of Rs. 17.90 Lac, deleted the remaining additions.

5. Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before this Tribunal against the addition of Rs. 17.90 Lac made by the Ld.AO u/s. 68 of the Act. Learned counsel for the assessee submitted that out of total alleged sum of Rs. 17.90 Lac, assessee could not provide bank statements of cash creditors through which assessee has received a sum of Rs. 4.50 Lac.

6. Learned counsel for the assessee referring to the paper book running into 58 pages and 119 pages along with making reference to certain judicial precedents stated that assessee has provided all details to explain the nature and source of the alleged sum. She further submitted that the loan taken from Raj Bhiku Gaikwad and Rupesh Bhiku Gaikwad has been repaid. She also submitted that interest has been paid on the loans taken from time to time and tax at source has been deducted wherever applicable. She submitted that identity and creditworthiness of the cash credits and genuineness of the transactions has been established and, therefore, the impugned addition is uncalled for. Along with other judgments, reliance placed on the judgment of Hon’ble Jurisdictional High Court in the case of PCIT vs. M/s. Skylark Build in Income Tax Appeal No. 616 of 2016, dated 24/10/2018.

7. On the other hand, Ld. Departmental Representative (DR) vehemently argued supporting the order of Ld.CIT(A) and stated that assessee has failed to explain the nature of source of alleged sum and, therefore, the impugned addition deserves to be affirmed.

8. We have heard rival contentions and perused the records placed before us. Assessee is aggrieved with the additions u/s. 68 of the Act for the unexplained cash credit loans of Rs. 17.90 Lac received from the following parties:-

9. We have gone through the records carefully and also the details filed by the assessee to prove the identity and genuineness of the cash creditors and also genuineness of the transactions. The details filed by the assessee for the alleged five cash creditors along with details of PAN, addresses, cheque nos. and bank details are as under:-

10. From going through above details, we find that assessee has filed the details of PAN and addresses of the alleged cash creditors. Payments have been received through banking channel. Ledger account with confirmations has been filed. Interest has been regularly debited in the ledger account of the cash creditors and tax at source (wherever applicable) has been deducted. We have also gone through the ledger account of the subsequent periods and find that the major amount out of alleged unsecured loans has been repaid. We find out of the alleged sum of Rs. 17.90 Lac, assessee has already repaid the sum of Rs. 13.90 Lac and for remaining amount of Rs. 4.00 Lac assessee has furnished sufficient details to explain the identity and creditworthiness of the cash creditors and genuineness of the transactions. All these facts remain uncontroverted by the Ld. DR.

11. Learned counsel for the assessee is also fair enough in stating that in the cases of two cash creditors, namely Raj Bhiku Gaikwad and Rupesh Bhiku Gaikwad unsecured loans of Rs. 1.50 Lac and Rs. 3.00 Lac which certainly has been received by the assessee LLP through banking channel, but the bank statements of the cash creditors through which the said sum was received could not be procured from the cash creditors. She further stated that total unsecured loans received from Raj Bhiku Gaikwad and Rupesh Bhiku Gaikwad has been repaid.

12. We find that Hon’ble Jurisdictional High Court in the case of M/s. Skylark Build (supra) has held that even if in case the nature of transaction of receiving the sum in the books of accounts is doubtful in nature, if there is a subsequent development and namely that each of these creditors from whom the assessee borrowed moneys or who advanced it the moneys, were repaid the sums borrowed, would establish that these were indeed real creditors; that they had indeed the funds available with them and that the transactions were genuine.

13. Examining the facts of the present case in the light of the above judgment and also considering the documents filed in the paper book placed before us, we find that assessee successfully explained the nature and source of alleged sum and also successfully proved the identity and creditworthiness of the cash creditors and genuineness of the transactions, and therefore, in our considered view, the addition u/s. 68 of the Act is uncalled for. Finding of the Ld.CIT(A) is reversed and the addition u/s. 68 of the Act of Rs. 17.90 Lac is hereby deleted. Effective grounds of appeal raised by the assessee are allowed.

14. In the result, appeal of the Assessee is allowed.

Order pronounced in the open Court on 03.12.2025.