2025 (7) TMI 1218 - AT - Income Tax

Addition u/s 68 - unsecured loans received by the assessee - Addition made respective Income Tax Returns (ITRs) of the two lenders showed less income and there was huge debits and credit in the account of the lender which were not commensurate with the income tax return - HELD THAT - Creditworthiness of the lender was doubted by Ld. AO merely on the ground of low return of income. However during remand proceedings the assessee amply proved the source of source and furnished the requisite documents establishing creditworthiness of the two lenders. Apparently the loans have been sourced by the two lenders from third-parties and the assessee established the creditworthiness of even of third parties. The low income would not be a ground to make the impugned additions. The loan amount has been sourced from third-parties. All the ingredients of Sec.68 are shown to have been fulfilled by the assessee. Decided in favour of assessee.

Summary

ISSUES:

Whether the addition under Section 68 of the Income Tax Act is justified on the ground of alleged non-establishment of the identity, creditworthiness, and genuineness of unsecured loans received by the assessee.Whether the assessee discharged the onus under Section 68 by proving the "source of source" of the loans received from two lenders whose declared income was low.Whether low declared income of the lenders alone can be a valid ground for making additions under Section 68.

RULINGS / HOLDINGS:

The addition under Section 68 was not justified as the assessee successfully established the identity, creditworthiness, and genuineness of the loans by furnishing comprehensive documentary evidence including PAN, account confirmations, Income Tax Returns, and bank statements of both the lenders and their sources.The assessee discharged the onus under Section 68 by providing detailed "source of source" information, thereby fulfilling all the ingredients required under the provision.Low declared income of the lenders, without any adverse material proving the loans belonged to the assessee, is insufficient to sustain additions under Section 68.

RATIONALE:

The Court applied the statutory framework of Section 68 of the Income Tax Act, which requires the assessee to establish the identity of the creditor, the creditworthiness of the lender, and the genuineness of the transaction.The Court relied on the principle that mere discrepancy between the lender's declared income and the loan amount is not conclusive proof of undisclosed income or sham transactions, especially when the assessee provides credible documentary evidence tracing the "source of source."The adjudication considered the ratio of various judicial decisions emphasizing that the burden on the assessee under Section 68 is discharged by furnishing credible and complete evidence regarding the source of funds.No dissent or doctrinal shift was noted; the decision reaffirmed established legal principles governing unexplained cash credits under Section 68.