Once repayment of the loan is established, credit entries cannot be added to income in isolation ignoring the debit entries despite being made in the later years – ITAT
In a recent judgment, ITAT Calcutta has deleted addition for unexplained cash credit observing that once repayment of the loan has been established based on the documentary evidence, the credit entries cannot be looked into isolation after ignoring the debit entries despite the debit entries being carried out in the later years.
ABCAUS Case Law Citation:
4617 (2025) (06) abcaus.in ITAT
In the instant case, the Income Tax Department had challenged the order passed by the CIT(A) in deleting addition made on account of unexplained cash credit under section 68 of the Income Tax Act, 1961 (the Act).
The assessee was an individual who had filed return of income u/s 139 for the relevant Assessment Year. The return was duly processed u/s 143(1) of the Act.
Later, a search u/s 132 of the Act was conducted in the resident premises of the assessee and some valuable documents were found/ seized during the course of search.
Accordingly, notice u/s 153A of the Act was issued in response to the same the assessee filed return of income. The AO on verification of the available documents in the record found that the assessee had raised the unsecured loan from various entities, as a result of which, the AO treated certain amount as unexplained cash credit u/s 68 of the Act.
Aggrieved by the said order, the assessee preferred an appeal before the CIT(A) wherein appeal of the assessee was allowed by the CIT(A).
Before the Tribunal, the Revenue contended that CIT(A) had erred in law by not appreciating the fact that the lender companies could not be located at the address provided by the assessee. The CIT(A) only appreciated PAN, Acknowledgement of IT returns, bank account statement ignoring the law that they are not sufficient to discharge the onus u/s 68 of the Act to prove genuineness, creditworthiness and identity.
On the other hand, the assessee responded that the unsecured loan taken by the assessee from three private limited companies had been refunded and those companies had also charged interest on such loans and it was also accounted in the regular Books of Accounts maintained by the assessee.
The assessee further submits that all the private limited companies were registered with Registrar of Companies and all the loans taken and refunded through banking channel.
It was submitted that merely because the parties could not be traced cannot be a ground for making the addition.
The Tribunal observed that CIT(A) had discussed the issue very elaborately and also discussed the judicial pronouncement. The CIT(A) opined that the assessee had filed all documentary evidences which it was required to maintain in the ordinary course to substantiate the identity and creditworthiness of the lender and the genuineness of the transaction. The lenders had own funds to advance a loan to the assessee. The assessee had provided the said interest in its books. The return of income filed by lender was also furnished. The loan was also repaid.
The CIT(A) further discussed the judgment of the Gujarat High Court and held that therefore it cannot be said that the assessee was a beneficiary of the loan. The High Court had upheld the findings of the ITAT that once repayment of the loan has been established based on the documentary evidence, the credit entries cannot be looked into isolation after ignoring the debit entries despite the debit entries being carried out in the later years.
Accordingly, the Tribunal held that in view the facts and the order passed by the CIT(A), there was no infirmity in the impugned order. As a result, the order passed by the CIT(A) was affirmed and the appeal of the revenue was dismissed.
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