Unsecured Loans’ Creditworthiness confirmed through PAN, ITR and Confirmations Sufficient: ITAT deletes S. 68 Addition [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that unsecured loans cannot be treated as unexplained cash credits under Section 68 where the assessee establishes creditworthiness through PAN, income tax returns, confirmations and bank statements.

The assessee firm, Techno Industries, filed an appeal before the tribunal. The issue was about the Assessment Year 2017-18 where the Assessing Officer completed assessment under Section 143(3) and made an addition of ₹1.03 crore in respect of unsecured loans received from five parties, along with related interest disallowance.

The officer alleged that the assessee failed to establish the identity, creditworthiness and genuineness of the lenders.

However, during appellate proceedings, the assessee furnished detailed evidence including lender confirmations, PAN details, ITR acknowledgements, bank statements, Aadhaar copies and proof of transactions routed through banking channels. It was also shown that interest payments were made after deduction of TDS.

The Commissioner (Appeals) admitted and examined the additional evidence and concluded that all three essential ingredients under Section 68 were satisfied.

It said that the identity was proved through PAN and KYC documents, creditworthiness through ITRs and bank records, and genuineness through proper banking transactions and interest payments with TDS.

Also read: S. 68 Applies to Cash Credits in Books Even under Presumptive Tax: ITAT Deletes Ad Hoc Profit Addition [Read Order]

The additions were accordingly deleted, which the Revenue challenged before the Tribunal. It objected to admission of additional evidence under Rule 46A.

The tribunal bench of Sidhratha Nautiyala (Judicial member) and Dr. B.R.R. Kumar (Vice president), confirmed the findings of the CIT(A), observing that the assessee had produced complete documentation for each lender, including confirmations, tax returns and bank statements.

The Revenue failed to bring any adverse material on record to rebut these findings, said the bench.

Accordingly it upheld the deletion of ₹1.03 crore addition made by the Assessing Officer towards unsecured loans after finding that the primary onus cast under Section 68 stood duly discharged.

In the same matter, on a separate issue relating to employees’ contribution to PF, the Tribunal reversed the CIT(A)’s relief and restored the disallowance, following the Supreme Court ruling in Checkmate Services (P) Ltd., holding that such contributions must be deposited within the due date under the respective statute to qualify for deduction.

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