Non-Response to Summons by Lenders Cannot Justify Addition u/s 68 When Documentary Evidence Proves Loan Transactions: ITAT Deletes ₹6.25 Crore Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT) has held that the mere non-response of lenders to departmental summons cannot be a basis for invoking Section 68 of the Income Tax Act when the assessee has furnished adequate documentary evidence proving the genuineness of the loan transactions. The Tribunal accordingly upheld the deletion of an addition of ₹6.25 crore.

The dispute arose in the case of Paramount Propbuild Pvt. Ltd. for the Assessment Year 2011-12. Following a search operation conducted on the Paramount, Gulshan and Ajnara Group on March 11, 2011, the Assessing Officer (AO) scrutinized unsecured loans aggregating to ₹6.25 crore received by the assessee from four finance companies.

The AO treated the loans as unexplained cash credits under Section 68 after notices and summons issued to the lender companies reportedly remained unserved. According to the Revenue department the assessee had failed to establish the identity and creditworthiness of the lenders and the genuineness of the transactions.

The assessee produced extensive documentary evidence including PAN cards, confirmations, income tax returns, audited financial statements, certificates of incorporation, board resolutions, loan sanction documents and bank records. The assessee emphasized that all four lenders were registered Non-Banking Financial Companies (NBFCs) and that the loans were received and repaid through regular banking channels within a short span.

The Revenue challenged the relief granted by the Commissioner of Income Tax (Appeals) and stated that the additional evidence should not have been admitted and that the lenders’ non-compliance with summons raised serious doubts regarding the transactions.

The Tribunal observed that the additional evidence had been forwarded to the AO during remand proceedings. Significantly, the AO neither disputed the authenticity of the documents nor offered any adverse comments on their merits.

The Tribunal further noted that each lender possessed substantial financial strength, with net worth exceeding ₹20 crore during the relevant period. It also found that the loans had been fully repaid through banking channels long before the search action was conducted.

The Bench of Anubhav Sharma (Judicial Member) and Manish Agarwal (Accountant Member) held that once the assessee discharges the initial burden under Section 68 the addition cannot survive merely because lenders do not appear before the tax authorities.

Accordingly, the Tribunal dismissed the Revenue’s appeal and affirmed the deletion of the ₹6.25 crore addition.

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