Genuineness of Loans u/s 68: ITAT Orders Fresh Verification of Creditworthiness and Transactions [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal(ITAT)  restored the addition of ₹12.83 lakh under Section 68 of Income Tax Act,1961, for fresh verification, as the assessee had submitted Permanent Account Number(PAN), Income Tax Return(ITR), confirmations, and bank statements to prove the creditworthiness of lenders and genuineness of the transactions.

Dushyantsinh Yadvendrasinh Chudasama, appellant-assessee, was engaged in trading petrol, diesel, and oil through his proprietorship M/s Rudra Petroleum and was also a partner in M/s Rudra Minerals and M/s Rudra Construction. The assessments for both years were completed under Section 143(3) of the Income-tax Act, 1961.

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During the assessment, the Assessing Officer(AO) found that the assessee failed to prove the creditworthiness of the lenders and the genuineness of the loans. The assessee gave only PAN details but did not provide bank statements or financials. One lender had low income and gave a large interest-free loan, which raised doubts. Since the source of funds was not explained, the AO added Rs. 12,83,000/- as unexplained cash credit under Section 68. The Commissioner of Income Tax(Appeals)[CIT(A)] confirmed the addition.

The assessee’s counsel stated that both loans were received through bank channels and that PAN, ITR (for Y. M. Chudasama), confirmations, and bank statements were submitted to prove creditworthiness. He argued that the assessee had met the initial burden of proof, so the addition made by the AO and confirmed by the CIT(A) was not justified.

Read More: Additions u/s 68/69A Cannot Survive Once Creditor Details Identity, Creditworthiness, and Genuineness Are Proved: ITAT

It was also pointed out that part of the loans had been repaid during the year, and even the opening balance in Chudasama’s case was wrongly added under Section 68. The counsel relied on the Gujarat High Court ruling in CIT vs. Apex Therm Packaging (P.) Ltd., where it was held that when full details and bank transactions were provided, additions under Section 68 were not justified.

The two member bench comprising Siddhartha Nautiyal(Judicial Member) and Makarand V.Mahadeokar(Accountant Member) restored the matter to the AO for fresh verification. It directed the AO to check if the loans were partly or fully repaid and to re-examine the creditworthiness of the lenders and genuineness of the transactions. The Tribunal asked the AO to consider the Gujarat High Court’s ruling in CIT vs. Apex Therm Packaging (P.) Ltd. If the assessee was found to have proved the loans were genuine, the addition under Section 68 was to be deleted. The AO was told to decide the matter as per law.

In short,the appeal was allowed for statistical purposes.

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