Cash deposit before giving unsecured loan-Addition in hands of loan creditor or receiver?

Cash deposited in bank before giving unsecured loan. The addition if at all can be made u/s 69A in the hands of loan creditor and not u/s 68 in the hands of receiver.

In a recent judgment, ITAT Raipur has held where loan creditor deposited cash just before giving unsecured loan to the assessee, the addition if at all was to be made u/s 69A in the hands of the loan creditor and not under section 68 in the hands of the assessee.

ABCAUS Case Law Citation:
4919 (2025) (12) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition made under section 68 of the Income tax Act, 1961 (the Act) towards unsecured loan taken.

Dduring the course of assessment proceedings, it was noticed that the assessee had procured fresh loan from different parties. The assessee firm was asked to establish during the course of assessment proceedings, the identity, genuineness and creditworthiness of the transactions.

The assessee firm had filed copy of ITR, Bank statements and confirmations of the lenders for verification. The Assessing Officer observed that in some cases cash had been deposited just before the lending of money. Accordingly, to verify their creditworthiness, summons u/s 151(1) of the Act were issued. The lenders attended the office and their statements were recorded on oath except in the case of one lender who was specifically asked to furnish copy of acknowledgement of ITR, balance sheet and capital account and to explain the source of deposit of Rs.10,00,000/- in her bank account just before the lending of money to the assessee firm.

However, grandson of the said lender attended in response to the summons issued and has filed a written submission alongwith acknowledgement of ITR, computation of income and bank statement.

The AO observed that the other documents viz. balance sheet and capital account had not been filed and neither did the source of cash deposited in the bank account just before the lending of money was explained. Thus, the creditworthiness and genuineness of the said transaction was not established.

Vide notice u/s 142(1) the assessee firm was informed about the same and was required to show cause as to why the amount of Rs.10,00,000/- received from the said lender in the form of unsecured loan be not added back to the income.

As the assessee firm did not make compliance to the said SCN within prescribed time, the AO presumed that the assessee firm had nothing to say in this regard and got no objection for the proposed addition.

Accordingly, the unsecured loan of Rs. 10,00,000/- was treated as unexplained credit and added back to the income of the assessee firm u/s 68 of the Act and penalty proceedings were separately initiated.

The Tribunal observed that firstly, the addition had been made since the lender of the money had deposited cash of an equal amount just before giving money to the assessee. The addition if at all was to be made since the nature and source of such deposits remained unexplained, it would be under section 69A of the Act in the hands of the lender/loan creditor and not Section 68 of the Act in the hands of the assessee. In other words, the AO of the said lender should have made such addition in the hands of the said loan creditor.

The Tribunal opined that if the said addition had not been made in the hands of the lender/creditor by her AO, then in effect, there was no dispute regarding credibility of the said amount deposited and therefore, the limb of creditworthiness, genuineness and identity so far as Section 68 is concerned, is in anyway gets satisfied and in this count, therefore, there cannot be any addition u/s. 68 of the Act regarding the assessee. 

Secondly, the Tribunal observed that there was no evidence placed on record by the AO to show that the assessee had failed to establish the three ingredients i.e. identity, creditworthiness and genuineness of Section 68 of the Act before making the addition.

Accordingly, the Tribunal directed AO to delete the addition made u/s. 68 of the Act in the hands of the assessee.

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