Makaba Kariyappa Venkatesh Vs ITO (ITAT Bangalore)
Four Years Without Repayment Does Not Turn a Loan into Income: ITAT Deletes ₹19.10 Lakh Addition
The dispute
In Makaba Kariyappa Venkatesh v. ITO, ITA No. 925/Bang/2026, the Bengaluru Bench of the Income Tax Appellate Tribunal examined an addition of ₹19,10,000 under section 68 for assessment year 2020–21. The Assessing Officer doubted two unsecured loans chiefly because they were interest-free and had remained unpaid for several years. On 21 September 2026, the Tribunal directed deletion of the addition after examining the lenders’ confirmations, tax records and bank transactions.
The assessee had not originally filed a return. Information available to the department showed bank deposits, interest income, a property purchase and time deposits, leading to reassessment proceedings. In response, he filed a return declaring income of ₹1,09,479. The Assessing Officer accepted his explanations for the other transactions but questioned loans of ₹12,10,000 from Mr. Tippar and ₹7,00,000 from Mr. H.A. Raju. Adding both amounts under section 68, he assessed total income at ₹20,19,479.
Why the loans were questioned
The assessee said he had borrowed from two longstanding friends for house construction and medical needs. He supplied loan confirmations and the lenders’ income-tax returns. The amounts had entered his bank account through banking channels, and both lenders confirmed that the loans remained outstanding. They explained that they had not pressed for repayment because of his health and financial difficulties.
The Assessing Officer was unconvinced. He questioned how the loans had been used, why no interest had been paid, and why repayment had not occurred despite the assessee having received substantial compensation. In his view, the long period without repayment cast doubt on whether the transactions were genuine.
The assessee appealed, but the Commissioner (Appeals) issued six notices without receiving an effective response apart from one request for a short adjournment. The Commissioner decided the appeal in the assessee’s absence and sustained the addition. Before the Tribunal, the assessee attributed his inability to participate to serious illness and produced medical records.
What section 68 required
The Tribunal framed the issue around the familiar three elements of a loan explanation: the lender’s identity, the lender’s creditworthiness and the genuineness of the transaction. The initial burden lay with the assessee. Once he produced evidence addressing those elements, the Assessing Officer had to examine it, conduct any necessary inquiry and identify a specific deficiency.
Here, the Tribunal found that the assessee had crossed that initial threshold. The lenders were identified through their details and confirmations; their income-tax returns and source details were furnished; and the bank records showed the receipts through RTGS with the lenders’ names. The lenders described their relationship with the assessee, explained why they had advanced interest-free funds, and offered to provide further information to the department.
An unpaid loan may call for examination, but the absence of repayment is not, by itself, proof that the original credit was unexplained. The lenders had acknowledged that the amounts were still due and had given a reason for allowing repayment to wait. The assessee’s medical records supported his account of ill health. He also pointed the Tribunal to a bank statement that, according to his submission, showed later repayment.
The decisive gap was in the assessment inquiry. After receiving the supporting material, the Assessing Officer did not seek clarification from the lenders or bring contrary evidence on record. His doubts about interest, use of funds and delayed repayment did not displace the evidence concerning who advanced the money and how it reached the assessee.
Why the Tribunal decided the issue itself
The department also relied on the assessee’s failure to respond to the Commissioner (Appeals). The Tribunal accepted that six notices had been issued, but found the medical records a satisfactory explanation for his absence. More significantly, it held that the material needed to decide the loan issue had already been placed before the Assessing Officer and was available to the Commissioner (Appeals).
The Tribunal therefore declined to send the case back for another round of proceedings. Referring to Supreme Court decisions cautioning against unnecessary remands when the record is sufficient, it decided the merits and directed the Assessing Officer to delete the full ₹19,10,000 addition. Ground no. 5 succeeded; the remaining grounds became infructuous. The order describes the appeal as partly allowed, but the disputed loan addition was deleted outright.
Author’s comment
The useful distinction in this decision is between a circumstance that prompts a question and evidence that answers it. An interest-free loan left unpaid for years can reasonably attract scrutiny. Yet once identified lenders confirm bank transfers and provide financial details, section 68 requires the assessment to engage with that material. Suspicion about repayment cannot substitute for an inquiry that exposes a defect in identity, capacity or genuineness.
There is also a date inconsistency in paragraph 13 of the order: it states that the loans were received on 22 and 23 April 2026, although the appeal concerns assessment year 2020–21. Readers relying on the transaction dates should check the underlying bank records. The inconsistency does not alter the Tribunal’s stated direction to delete the addition.
Cases Discussed
- Peter Augustine v. K.V. Xavier, 2025 INSC 771 — Supreme Court decision referred to for the principle that remand should not be ordered mechanically when the material necessary to resolve the controversy is already on record.
- Sirajudheen v. Zeenath, 2023 INSC 173 — Supreme Court decision referred to concerning setting aside a direction for de novo trial where sufficient reasons for retrial were absent.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. Shri Makaba Kariyappa Venkatesh [the Assessee/Appellant] has filed this appeal against the appellate order dated 31 December 2025 passed by the National Faceless Appeal Centre [the Ld. CIT(A)] for assessment year 2020–21. By that order, the assessee’s appeal against the reassessment order passed under section 147 read with sections 144 and 144B of the Income Tax Act, 1961, was dismissed. Aggrieved by the said order, the assessee is in appeal before us.
2. The Assessee has raised the following grounds of appeal:
1. The order passed under the provisions of section 250 of the Income-Tax Act, 1961 (“the Act” in short) by the learned Commissioner of Income Tax (Appeals) [for short “CIT(A)”] confirming the order passed under the provisions of section 147 read with section 144 read with section 144B of the Act by the learned Assessing Officer in so far as it is against the Appellant, is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the case.
2. On the facts and in the circumstances of the case, the learned Assessing Officer has erred in issuing notice under Section 148 of the Act without furnishing to the Appellant a copy of the mandatory approval obtained under the provisions of section 151 of the Act. The non-furnishing of such statutory sanction, which is a condition precedent for assumption of jurisdiction, renders the notice under section 148 of the Act and all consequent proceedings void ab initio and liable to be quashed.
Without prejudice to the above,
3. The learned Assessing Authorities have not complied with the mandatory procedures laid down under the provisions of section 151A of the Act relating to faceless assessment under section 147 read with section 148A and section 148 on the facts and circumstances of the case.
Without prejudice to the above,
4. The learned CIT(A) ought to have provided a proper opportunity of hearing by serving the notice to the Appellant through postal mode as specified in the appeal memo. The learned CIT(A) has denied the principles of natural justice while passing the order under section 250 of the Act on the facts and circumstances of the case.
Without prejudice to the above,
5. The learned Assessing Officer has erred by treating the loan amount received into the bank account amounting to Rs.19,10,000 as unexplained money under the provisions of the Act under section 68 of the Act on the facts and circumstances of the case.
6. Without prejudice the learned Assessing Officer erred in law in levying interest under the provisions of section 234A, section 234B and section 234F of the Act on the facts and circumstances of the case.
7. Without prejudice the learned Assessing Officer erred in initiating the penal provisions under section 271AAC of the Act on the facts and circumstances of the case.
8. The Appellant craves to add, alter, delete or substitute any of the grounds urged above
3. Briefly stated, the assessee is an individual in whose case information was received that he had deposited ₹4,044,500 in his bank account, earned interest other than interest on securities amounting to ₹109,479, purchased immovable property for ₹73,50,000, and made time deposits of ₹22,00,000. Since the assessee was a non-filer, the assessment was reopened.
4. The requisite notices were issued to the assessee and, in response to the reopening notice, the assessee filed a return declaring total income of ₹109,479.
5. During the assessment proceedings, the learned Assessing Officer accepted the assessee’s explanation for all other transactions. However, he noted that the assessee had received unsecured loans aggregating to ₹19,10,000 from two persons, namely Mr. Tippar and Mr. H.A. Raju, comprising ₹12,10,000 and ₹7,00,000 respectively. The assessee was therefore asked to explain the purpose and source of these loans.
6. The assessee explained that the loans were obtained for house construction and medical treatment and were routed through his bank account. He furnished confirmations from the lenders along with their income-tax returns for assessment year 2020–21. Both lenders confirmed the transactions and agreed to provide any further details required. They also stated that the amounts remained outstanding, as they had not insisted on repayment in view of the assessee’s health and financial difficulties.
7. On examining the material, the learned Assessing Officer found that the assessee had not shown how the loans were utilised, whether any interest was paid, or why they remained unpaid for four years despite the assessee receiving substantial compensation. He therefore questioned the genuineness of the loans and made an addition of ₹19,10,000 under section 68 of the Income Tax Act. Consequently, the assessee’s total income was assessed at ₹20,19,479, as against the returned income of ₹1,09,479.
8. Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). The learned CIT(A) issued six notices to the assessee; however, except for one request seeking a short adjournment, there was no effective compliance. The learned CIT(A) therefore proceeded to pass an ex parte order and confirmed the addition of ₹19,10,000.
9. Aggrieved by the said order, the assessee is in appeal before us.
10. I have carefully heard Shri Sheeresh Kumar, Chartered Accountant, and Shri Darshan Bhat, Chartered Accountant, on behalf of the assessee. They furnished evidence to establish the genuineness of the loans received from two friends of the assessee and submitted that the reasons for making the addition were not in accordance with section 68 of the Income Tax Act. It was submitted that, owing to the assessee’s ill health, the notices issued by the learned CIT(A) could not be responded to. The learned authorised representatives referred to the written submissions and the evidence filed to establish the identity and creditworthiness of the lenders and the genuineness of the loan transactions. They submitted that the loans were received through account-payee cheques in the assessee’s bank account with Central Bank of India, and that the assessee had furnished the Permanent Account Numbers, loan declarations, and, in respect of one creditor, a copy of the GST certificate. The assessee also filed the income-tax returns of both lenders. The assessee was suffering from serious health issues and, therefore, had not repaid the amounts till that date. It was further submitted that the loans were received through banking channels, the identity of the creditors was established, their income-tax returns demonstrated their creditworthiness, and their longstanding relationship with the assessee since childhood supported the genuineness of the transactions. Accordingly, it was contended that the assessee had fully explained the identity, creditworthiness, and genuineness of the loan transactions aggregating to ₹19,10,000 and, therefore, the addition made by the learned Assessing Officer was without merit. The learned authorised representatives also referred to page 185 of the paper book, where the bank statement reflected repayment of the said loans.
11. The learned Departmental Representative, Shri Ganesh R. Ghale, Standing Counsel, strongly supported the orders of the lower authorities. He submitted that the assessee had obtained loans aggregating to ₹19,10,000 from two friends and had not repaid them for nearly four years despite receiving substantial compensation. According to him, these facts raised serious doubts about the genuineness of the loans and showed that the requirements of section 68 of the Income Tax Act were not satisfied. He therefore contended that the learned Assessing Officer had rightly made the addition. With regard to the order of the learned CIT(A), he submitted that several notices had been issued to the assessee, but there was no compliance. Accordingly, the learned CIT(A) was justified in upholding the assessment order on the basis of the material available on record.
12. I have considered the rival submissions, perused the orders of the lower authorities, and examined the material placed on record by the assessee. The issue for consideration is whether section 68 of the Income Tax Act applies to the impugned credits. Under that provision, when a sum is found credited in an assessee’s books, the assessee must satisfactorily explain its nature and source. If the explanation is not satisfactory, the amount may be deemed to be income and added to the total income. The assessee initially bears the burden of proving the creditor’s identity, creditworthiness, and the genuineness of the transaction. Once this burden is discharged, the Assessing Officer must evaluate the evidence, make necessary inquiries, and identify any deficiency in these requirements. If such deficiency is pointed out, the assessee must rebut it with supporting evidence. Thus, any addition under section 68 must rest on the facts and evidence available on record.
13. In the present case, the assessee received ₹12,10,000 from Mr. Tippar on 22 April 2026 and ₹7,00,000 from Mr. H.A. Raju on 23 April 2026. Both amounts were credited to the assessee’s bank account through RTGS, and the bank records reflected the names of the respective lenders. The assessee also produced confirmations from both lenders, who stated that the loans were interest-free unsecured loans advanced on account of their long-standing association and trust with the assessee. They confirmed that they had known the assessee since childhood, that the loans were advanced through banking channels for house construction, agricultural activities, and medical needs, and that the amounts remained outstanding. They further explained that, owing to the assessee’s financial difficulties and health issues, they had not insisted on recovery. They also provided details of their sources of funds and expressed their willingness to furnish any further clarification required by the Income Tax Department.
14. The learned Assessing Officer made the addition mainly on the ground that the assessee had not repaid the loans for several years despite receiving substantial compensation. The assessee explained that the delay in repayment was due to his ill health and financial hardship. To substantiate this explanation, he filed medical records from hospital authorities, which also explain why he could not effectively appear before the learned CIT(A). The lenders themselves had stated that, considering the assessee’s financial and health difficulties, they did not insist on repayment. The assessee has further submitted before us that the loans have since been repaid.
15. On these facts, the assessee has discharged the initial onus under section 68 by establishing the identity of the lenders, their creditworthiness, and the genuineness of the loan transactions. The lenders’ confirmations, bank statements showing receipt through RTGS, income-tax returns, source details, and their willingness to provide further clarification were available on record. After such evidence was furnished, the learned Assessing Officer did not make any further inquiry from the lenders or bring any contrary material on record. In these circumstances, the addition cannot be sustained. We therefore direct the learned Assessing Officer to delete the addition of ₹19,10,000 made under section 68 of the Income Tax Act.
16. It is true that the assessee did not appear before the learned CIT(A) despite six notices. However, the assessee has produced extensive medical records evidencing his illness, which satisfactorily explains his failure to appear. We have nevertheless decided the issue on the basis of the material placed before the learned Assessing Officer, which was also available to the learned CIT(A). The learned CIT(A) could have disposed of the appeal by appreciating the same material, but failed to do so. In the facts and circumstances of the case, we find no reason to restore the matter to the file of the lower authorities.
17. The Hon’ble Supreme Court has held that remand should not be ordered mechanically when the pleadings, documents, and evidence necessary to decide the dispute are already before the appellate court. In Peter Augustine v. K.V. Xavier, 2025 INSC 771, the Court set aside the High Court’s remand order because the material required to resolve the controversy was already on record and no further evidence was necessary. Similarly, in Sirajudheen v. Zeenath, 2023 INSC 173, the Supreme Court set aside a direction for a de novo trial, holding that the High Court had not properly considered the trial court’s findings or given sufficient reasons for requiring the matter to be tried afresh.
18. Thus, in the present case, remand is unnecessary because the record is complete, all relevant evidence is already available, and this Tribunal is legally empowered to decide the issue on merits. No further evidence or factual finding is required, and remanding the matter would only prolong proceedings that have already remained pending for a considerable time.
19. In the result, ground no. 5 of the assessee’s appeal is allowed. In view of our decision directing the learned Assessing Officer to delete the addition, the remaining grounds of appeal have become infructuous and are accordingly dismissed.
20. In the result, appeal filed by the Assessee is partly allowed.
Order pronounced in the open court on 21st September, 2026.
