ITAT Ahmedabad Upholds Deletion of Section 68 Addition When Loan Transaction Substantiated With Complete Documentary Evidence
Case Overview
The Ahmedabad Single Member Bench of the Income Tax Appellate Tribunal (ITAT) has delivered a significant ruling in the matter of ITO Vs Mohanbhai Laljibhai Rami, pertaining to Assessment Year 2012-13. The Tribunal rejected the Revenue's appeal and sustained the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] to remove an addition of ₹10 lakh that had been made invoking Section 68 of the Income Tax Act, 1961, concerning an allegedly unexplained unsecured loan.
This ruling reinforces the principle that when an assessee provides comprehensive documentary proof establishing the identity, genuineness, and creditworthiness of a lender, the burden under Section 68 stands discharged, and additions made by the Assessing Officer cannot be sustained merely on suspicion.
Background and Factual Matrix
Original Assessment and Reopening
The assessee, an individual taxpayer, had originally filed his return of income for Assessment Year 2012-13 on 29th September 2012, declaring a total income of ₹22,26,830. Subsequently, the case was reopened by the tax authorities under Section 147 of the Income Tax Act, 1961, following which a notice under Section 148 was issued on 29th March 2019.
The reopening was triggered based on information received from the Investigation Wing of the Income Tax Department (DDIT Investment) regarding a loan transaction involving M/s Alton Infrastructure Pvt. Ltd. In compliance with the reopening notice issued under Section 148, the assessee filed his return of income on 20th August 2019.
Reassessment Proceedings
During the course of reassessment proceedings, statutory notices were duly issued to the assessee, who responded by submitting detailed documentation. The assessee furnished substantial evidence concerning the loan transaction, including:
- Loan confirmation letter from the lender
- Bank statements of the assessee showing receipt of loan amount
- Bank statements of the lender company (M/s Alton Infrastructure Pvt. Ltd.)
- Evidence demonstrating repayment of the loan through legitimate banking channels
- Details of the land transaction connected to the loan
Despite the submission of this comprehensive documentary evidence, the Assessing Officer (AO) completed the reassessment under Section 143(3) read with Section 147 of the Income Tax Act through an order dated 10th December 2019. In this order, the AO made an addition of ₹10 lakh, treating the unsecured loan as unexplained cash credit under Section 68 of the Act.
First Appellate Proceedings Before CIT(A)
Aggrieved by the assessment order and the addition made by the AO, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). After examining the material on record and the documentary evidence submitted by the assessee, the CIT(A) concluded that the assessee had satisfactorily established:
- The identity of the lender company
- The genuineness of the loan transaction
- The creditworthiness of M/s Alton Infrastructure Pvt. Ltd.
Based on these findings, the CIT(A) deleted the addition of ₹10 lakh made under Section 68 and allowed the assessee's appeal through an order dated 25th August 2025.
Revenue's Appeal Before ITAT
Grounds of Appeal Raised by Revenue
Dissatisfied with the CIT(A)'s order, the Revenue filed an appeal before the Income Tax Appellate Tribunal, Ahmedabad Bench, raising the following grounds:
Ground (a): The CIT(A) committed an error in law and on facts by deleting the addition of ₹10,00,000 made under Section 68 of the Income Tax Act, 1961, on account of unexplained cash credit, without properly appreciating the facts brought on record by the Assessing Officer.
Ground (b): The CIT(A) erred in law and on facts in accepting the genuineness of the loan transaction merely on the basis that the amount was received and repaid through banking channels, without verifying the source of funds and creditworthiness of the lender, M/s Alton Infrastructure Pvt. Ltd.
Ground (c): The appellant (Revenue) craved leave to add, alter, and/or amend all or any of the grounds before the final hearing of the appeal.