Paper books Proving Genuineness of Unsecured Loan and Movt of Funds: ITAT grants one Last Opportunity to Contest [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has remanded back an addition of ₹40 lakh made under Section68 of the income tax act, 1961, directing the Assessing Officer (AO) to re-examine the matter afresh after giving the assessee one final chance to substantiate the genuineness of the unsecured loan and the movement of funds.

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The dispute arose when the AO made an addition of ₹40 lakh in the hands of the assessee for Assessment Year 2012-13, treating it as unexplained cash credit under Section 68 on grounds of insufficient evidence.

The assessee explained that the amount originated from M/s MA Enterprises, a firm in which she is a partner, which had advanced the sum to SVJ Developers Pvt. Ltd., whose Director had also confirmed this transaction during assessment. Owing to an inadvertent error, the loan was later repaid back to the assessee personally.

However, both the AO and the CIT(A) disbelieved this explanation, with the CIT(A) simply reproducing the assessment order without making any independent finding on the evidence or the flow of funds.

Before the ITAT, the assessee submitted a detailed paper book containing confirmations, fund flow statements, and other documents to demonstrate that the loan and its repayment were genuine and properly routed.

After considering rival submissions, the bench of Mahavir Singh (Judicial member) and Amitabh Shukla (Accountant member) noted that the lower authorities failed to objectively examine the material facts and that the CIT(A) had not applied his mind independently while sustaining the addition.

The ITAT noted that the AO is the principal fact-finding authority and should have been given the full chance to examine the complete chain of transactions before drawing an unfavorable conclusion, citing the Supreme Court's ruling in Tin Box Company (249 ITR 216).

Accordingly, the ITAT set aside the addition and restored the matter to the file of the AO for a fresh, comprehensive adjudication with a direction to pass a speaking order after giving the assessee reasonable opportunity to produce all supporting evidence.

The Tribunal stated that the assessee's failure to reply to the AO's notices could be interpreted negatively and that this would be the last opportunity to provide a complete explanation of the funding source.

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