Loan Received via Banking Channels and Repaid with Interest cannot be treated as Bogus: Delhi HC upholds ₹10 Cr Deletion [Read Order]

In a recent ruling, the Delhi High Court held that a loan received through banking channels and repaid with interest could not be treated as bogus under Section 68 of the Income Tax Act, and upheld the deletion of a Rs. 10 crore addition made by the assessing officer.

The Revenue had filed an appeal challenging the order of the Income Tax Appellate Tribunal, which had affirmed the decision of the Commissioner of Income Tax (Appeals) deleting the addition of Rs. 10 crore towards unsecured loans received by KRBL Infrastructure Ltd. from Shashi Foods India Pvt. Ltd. for the assessment year 2014-15.

The assessing officer (AO) had made the addition on the ground that the lender lacked genuine business activity and that the transactions were connected to a bogus purchase network involving another entity. The AO also disallowed interest of ₹1.03 crore on the same reasoning.

The revenue counsel argued that mere banking entries were not enough to prove genuineness, and that the fund trail suggested circular transactions. They further argued that the creditworthiness of the lender stood unproved and that the assessee failed to meet the requirements of identity, creditworthiness, and genuineness under Section 68 of the Income Tax Act.

On the other hand, the assessee’s counsel argued that the loan had been received through normal banking channels, fully repaid in the next financial year along with interest, and confirmed by the lender both in a statement during survey and in its response to a notice under Section 133(6) of the Income Tax Act, 1961.

They argued that the assessee was not required to prove the “source of source” for the relevant assessment year, and that the assessing officer had not produced any material contradicting the evidence placed on record.

The Division Bench of Justice Suresh Kumar Kait and Justice Neena Bansal Krishna observed that the lender’s identity, financial details, and confirmations had been placed before the assessing officer, and that the repayment of the loan with interest was not disputed.

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The court explained that once the assessee had produced primary evidence to prove the loan transaction, the burden shifted to the assessing officer to show why the evidence was unreliable, which had not been done. It also pointed out that enquiries into the lender’s own suppliers related to the “source of source,” which the assessee was not required to establish for the relevant year.

The court observed that the findings of the CIT(A) and the Tribunal were based on the material on record and did not give rise to any substantial question of law. It upheld the view that the assessing officer had proceeded on assumptions rather than evidence, and that the assessee had discharged its burden under Section 68 of the Income Tax.

The court dismissed the Revenue’s appeal and affirmed the deletion of the Rs. 10 crore addition as well as the related interest disallowance. The appeal was rejected, and the order of the Tribunal was sustained.

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