Deletion of ₹11.54 Crore Addition on Unsecured Loans: ITAT Partially Restores Addition Citing Lack of Proof for Creditworthiness [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) partially restored a significant addition of unexplained cash credits which had been deleted by the Commissioner of Income Tax (Appeals) [CIT(A)] and ruled that there was lack of proof for creditworthiness.

Jayantilal Babulal Shah (assessee) for the Assessment Year 2011-12 the Assessing Officer (AO) reopened the case after observing the assessee had received unsecured loans totaling ₹14,94,29,083.

Upon scrutinizing the details of 164 creditors, the AO made an addition of ₹14,81,68,666 under Section 68, citing the failure of the assessee to prove the identity, genuineness, and critically the creditworthiness of the lenders.

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The AO noted that many lenders had given loans five times their returned income, were filing "nil" tax returns, and their bank statements were often not provided. Aggrieved by the AO’s order, the assessee filed an appeal before the CIT(A).

The CIT(A) provided substantial relief to the assessee by deleting an addition of ₹11,54,94,016. The CIT(A) observed that since the credits were received via banking channels and the assessee had furnished necessary information like PAN, ITR copies, and ledger confirmations, the onus stood discharged. Aggrieved by the CIT(A)’s order, the revenue filed an appeal before the ITAT.

The two-member bench comprising Dr. B.R.R. Kumar (Vice President) and Siddhartha Nautiyal (Judicial Member), analyzed the evidence submitted by the assessee concerning the creditors for whom relief was granted.

The Tribunal found that for a large number of creditors (including Sirsa Enterprises, Suman Trading Company, R.K. Enterprises, and others), the evidence was clearly insufficient. The bench observed that lenders showed a meager income (₹2.64 lakh in ITR) but gave a substantial loan.

The tribunal also observed that the assessee only furnished a confirmation of account and ITR, failing to provide the bank statement to prove the source of funds given by the creditor and the creditworthiness of the party was clearly not proved, as the loan amount significantly exceeded the declared returned income.

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The tribunal observed that the settled legal principle that the mere fact that an amount has been received through banking channels does not prove the genuineness of the transaction. The tribunal held that the CIT(A) erred in granting relief observing that for these specific parties where creditworthiness was not proved.

The tribunal restored the addition for the parties where the assessee failed to prove creditworthiness. In this result the appeal of the Department was partly allowed.

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