ITAT Nagpur on Small Loans from Friends and Relatives: When Section 69A Addition Cannot Stand

Background of the Dispute

The case of Pawan Pandurang Nimkar Vs ITO (ITAT Nagpur) deals with the taxability of several minor credit entries in a bank account, which the Assessing Officer treated as unexplained money under Section 69A of the Income Tax Act 1961.

The assessee, an individual, had multiple small deposits in his bank account during Assessment Year 2022-23. The Assessing Officer (AO) regarded these credits as unexplained and made an addition of ₹1,23,383/- under Section 69A. The assessee maintained that these were small loans extended by friends and relatives through regular banking channels and that their identity and the nature of the transactions stood fully explained.

The dispute ultimately reached the Income Tax Appellate Tribunal (ITAT), Nagpur Bench, which examined whether such credits could be treated as unexplained money when backed by proper banking records and identity documents of lenders.

Assessment Proceedings and Issues Raised

Return of Income and Scrutiny Selection

  • The assessee filed his return of income for A.Y. 2022-23 on 11.07.2022.
  • He declared total income of ₹29,330/- and a business loss of ₹58,560/-.
  • The case was selected for complete scrutiny through CASS on the ground of large turnover with no audit of books of account under Section 44AB.

During the scrutiny, the AO called for various details, including bank statements and explanations regarding certain credits appearing in the bank account.

Additions Made by the AO

After examining the material, the AO framed an order under Section 143(3) r.w.s. 144B on 19.03.2024. Two main additions were made:

  1. Undisclosed income of ₹2,31,737/-
  2. Unexplained money of ₹1,23,383/- under Section 69A

The addition under Section 69A was based on 42 small credit entries in the assessee’s bank account, which the AO characterized as unexplained money.

Appeal Before CIT(A) and Partial Relief

The assessee challenged the assessment before the Ld. Commissioner of Income Tax (Appeals) / NFAC, Delhi (CIT(A)) under Section 250.

  • The assessee obtained partial success before the CIT(A) in respect of other additions.
  • However, the CIT(A) confirmed the addition of ₹1,23,383/- made as unexplained money under Section 69A.

Aggrieved by this confirmation, the assessee carried the matter in appeal to the ITAT Nagpur, contesting only the Section 69A addition.

Assessee’s Stand Before the ITAT

Nature of the Credits

Before the Tribunal, the assessee explained that:

  • The impugned amount consisted of numerous small loans taken from friends and relatives.
  • Individual transactions ranged from approximately ₹2,000/- to around ₹39,528/-.
  • All amounts were received via proper banking channels into the assessee’s State Bank of India account (Darwha Branch, Maharashtra).

He submitted that these cash credits were not his own undisclosed money but were temporary financial assistance extended by known persons.

Evidence Produced

The assessee placed on record: