How a loan amount was utilised wouldn’t constitute failure to discharge onus u/s 68

Utilisation of loan amount would not constitute failure to discharge onus caste u/s 68 in absence of any defect in the documentary evidence produced by the assessee – ITAT

In a recent judgment, ITAT Hyderabad has held that where the Assessing Officer had not made out any defect in the documentary evidence produced by the assessee in respect of the loan transactions then, the utilisation of loan amount would not constitute failure of the assessee to discharge its onus caste u/s 68 of the Income Tax Act, 1961 (the Act).

ABCAUS Case Law Citation:
5145 (2026) (05) abacus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A), NFAC in confirming addition u/s 68 of the Act on account of unsecured loans.

During the course of scrutiny assessment, the Assessing Officer asked the assessee to furnish details of unsecured loans with names/address/PAN number of the loan creditors along with confirmation agreement if any. In reply, the assessee furnished bank account statement, LLP agreement, capital account, cash flow statement, P & L A/c, balancesheet, ledger extract and sundry creditors and sought some more time to submit the other details.

However, the Assessing Officer passed the assessment order and made the addition u/sec 68 of the Act on the account of unsecured loans shown as outstanding. The assessee challenged the Order of the Assessing Officer before the learned CIT(A) but could not succeed. 

The Tribunal observed that the assessee had furnished the PAN details of each of the loan creditor along with the confirmation letters. The assessee had also produced the loan agreements and bank account statements of the loan creditors. The Assessing Officer had clearly mentioned in the assessment order that the assessee had also provided loan agreements where it was stated that 7% simple interest will be charged however, in the ITR the assessee had neither declared any income from interest nor debited any expenditure towards interest paid.

The Tribunal further noted that out of the loan taken, the assessee had given the funds to its two sister concerns and one related party. The Assessing Officer had not disputed the identity of the parties from whom the assessee had taken loans, their creditworthiness but since the loan was utilised by the assessee to provide advances to the sister concerns/ related parties, the AO made the impugned addition observing it was a colourable device to make these transactions look like normal business transactions.

The Tribunal opined that the reasons assigned by the Assessing Officer without conducting a proper enquiry on the genuineness of the transaction would not justify the addition u/sec.68 of the Act. Once the assessee had produced the confirmation of all the parties along with the loan agreements which is also accepted by the Assessing Officer then, the utilisation of the loan cannot be a ground for making the addition u/sec.68 of the Act.

The Tribunal observed that once each and every party had entered into a loan agreement for granting loan to the assessee and their identity was not in dispute as all these loan creditors are assessed to tax then, the genuineness of the transaction cannot be doubted merely on the ground that the assessee has utilised this loan for making advances to the sister concerns/related party.

The Tribunal also noted that Ffrom the bank account of these concerns, it was clear that sufficient fund was available with these loan creditors and there was no abnormal transaction in the bank account of the loan creditors in the shape of any cash deposit prior to the loan given to the assessee or any other abnormal movement of fund.

The Tribunal opined that once the Assessing Officer had not made out any defect in the documentary evidence produced by the assessee in respect of the loan transactions then, the utilisation of loan amount would not constitute failure of the assessee to discharge its onus caste u/s 68 of the Act.

The Tribunal further noted that the CIT(A) had discussed only about the primary onus on the assessee to establish the identity and creditworthiness of the loan creditors as well as genuineness of the transaction but not given any finding how the assessee had failed to discharge its onus. It is settled proposition of law that once the assessee has discharged its primary onus to prove the identity and creditworthiness of the creditor and also established the genuineness of the transaction by production of the evidence of the capacity of the creditors as well as the transaction through banking channel without any abnormality then, the burden is shifted to the Assessing Officer to disprove the claim of the assessee which the Assessing Officer failed.

Accordingly, the Tribunal deleted the addition. 

Download Full Judgment Click Here >>

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