Once Cash Deposits In Bank A/C Of Lender Firm Is Accepted As Coming From Explained Sources, No addition Is Permitted U/s 68 As Unsecured Loan: Delhi ITAT

The Delhi ITAT deleted an addition made under Section 68 of the Income Tax Act concerning an unsecured loan obtained by the Assessee from a firm for investment in a company, affirming the transaction's identity, creditworthiness, and genuineness. Section 68 addresses unexplained cash credits, requiring taxpayers to prove their legitimacy. \r

The Division Bench, comprising Amit Shukla and M. Balaganesh, noted that the lender firm's AO found no issues with cash deposits in its bank account, confirming the sources. The Assessee, engaged in trading cloth and commission business, had received a ₹50 lakh loan from Banwari Lal Naresh Kumar during AY 2016-17. Despite the AO's doubts about the cash deposits' sources, the lender's partner explained these deposits under Section 131(1A) as daily sales proceeds, which were accepted by the AO. \r

The Bench observed that the lender's scrutiny assessment verified its creditworthiness and the loan's genuineness. Noting that the AO overlooked key materials confirming the loan's legitimacy, the ITAT concluded the Assessee met the requirements of Section 68, thus allowing the appeal. Counsel for the taxpayer were K. Sampath and V. Rajakumar, while Vivek Upadhyay represented the department.