Loan Credited without Lender Verification: ITAT Orders Fresh Review of ₹1.6 Cr Odisha Finlease Transaction [Read Order]

In a recent ruling, the Delhi Bench of the Income Tax Appellate Tribunal has remanded the case to the Assessing Officer for fresh examination after finding procedural lapses in treating a ₹1.6 crore unsecured loan from a dummy company as unexplained cash creditt under Section 68 of the Income Tax Act.

The case arose from reassessment proceedings initiated after a search on M/s KK Spun India Ltd, where the Investigation Wing identified Shri Aditya Jain as an accommodation‑entry operator. Based on his statement, the AO treated a ₹1.60 crore unsecured loan received by Divya Enterprises from Odisha Finlease Pvt Ltd (OFPL) as an unexplained cash credit, disallowing ₹1.90 lakh interest and initiating a penalty under Sections 270A and 271AAC.

The assessee, Divya Enterprises, contended that the loan was received and repaid through banking channels, interest was paid after deducting TDS, and the entire transaction was reflected in audited accounts. It also argued that the AO relied solely on third‑party statements without furnishing complete copies or allowing cross‑examination, violating principles of natural justice.

The Tribunal noted that the AO’s findings rested on the Investigation Wing’s report and the statement of Aditya Jain, yet no independent inquiry was conducted to verify OFPL’s financials or existence. Summons under Section 133(6) went unanswered, but the assessee had produced ledger accounts, bank statements, and TDS records.

The Bench Raj Kumar Chauhan (Judicial Member ) and Brajesh Kumar Singh(Accountant Member) observed that mere non‑response from the lender could not automatically render the transaction bogus.

Citing judicial precedents such as Krishna Chand Chela Ram v. CIT and Andaman Timber Industries v. CCE, the Tribunal noted that when an addition is based on a third‑party statement, the assessee must be given the right to cross‑examine. The denial of this right vitiated the assessment.

Accordingly, the ITAT set aside the orders of both the AO and CIT(A) and remanded the matter for fresh consideration, directing the department to provide full disclosure of relied‑upon materials and ensure a fair hearing.

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