Jaipur ITAT Upholds Deletion of ₹5 Crore Section 68 Addition on Short-Term Unsecured Loan

1. Background of the Dispute

The Jaipur Bench of the Income Tax Appellate Tribunal examined whether an unsecured loan of ₹5,00,00,000/- received and repaid within the same financial year could be treated as unexplained cash credit under Section 68 of the Income Tax Act 1961, merely because the lender’s returned income was relatively low.

The appeal was filed by the Revenue in the case of DCIT Vs OMGL Refinery Limited Liability Partnership for Assessment Year 2023-24, challenging the order of the CIT(A) dated 10.10.2025, which had deleted an addition of ₹5 crore made under Section 68, taxed by the Assessing Officer (AO) under Section 115BBE.

The assessee, a limited liability partnership, had filed its return of income for AY 2023-24 on 21.10.2023 declaring total income of ₹6,58,12,780/-. The case was selected for scrutiny on the following parameters:

  • Low net profit ratio
  • High refund claim
  • Significant squared-up loan transactions during the year

During this scrutiny, the AO focused on one particular unsecured loan transaction of ₹5,00,00,000/- from M/s Synergy Tradelink.

2. AO’s Concerns and Basis of Addition under Section 68

2.1 Focus on the ₹5 Crore Loan

The AO issued a show cause notice calling upon the assessee to explain and substantiate:

  • Identity of the lender
  • Creditworthiness of the lender
  • Genuineness of the loan transaction

The AO’s primary suspicion stemmed from the fact that M/s Synergy Tradelink had declared total income of only ₹11,57,230/- in its return for AY 2023-24, while having advanced ₹5,00,00,000/- as an unsecured, interest-free loan to the assessee.

2.2 Evidence Submitted by the Assessee

In response, the assessee produced a detailed set of documents, including:

  • Contra/ledger confirmation between the assessee and M/s Synergy Tradelink
  • Bank account statements evidencing inflow and outflow of the loan amount
  • ITR acknowledgement of M/s Synergy Tradelink for AY 2023-24
  • Audited financial statements of M/s Synergy Tradelink for FY 2022-23
  • Tax audit report of M/s Synergy Tradelink for AY 2023-24

The assessee explained that:

  • The unsecured loan of ₹5,00,00,000/- was received on 13.04.2022 through banking channels.
  • The entire amount was repaid through normal banking channels within the same financial year, and in fact, within a very short span of time (April to June 2022).
  • The audited balance sheet of M/s Synergy Tradelink reflected aggregate unsecured loans of ₹60,03,28,391/- as on 31.03.2023, indicating a substantial fund base out of which the loan to the assessee was advanced.

2.3 AO’s Rejection of Assessee’s Explanation

Despite the documentation, the AO concluded that the assessee had not satisfactorily proved the creditworthiness of M/s Synergy Tradelink or the genuineness of the loan, and therefore:

  • Treated the ₹5,00,00,000/- as unexplained cash credit under Section 68.
  • Taxed the same under Section 115BBE.

The AO was particularly influenced by:

  • The disparity between the lender’s declared income (₹11,57,230/-) and the size of the loan (₹5 crore).
  • An observation that the loan transaction was not reported by the lender in Form 3CD, which, in the AO’s view, cast doubt on the transaction.

3. Findings and Reasoning of the CIT(A)

On appeal, the CIT(A) examined both the documentary record and the AO’s approach and ultimately deleted the entire addition of ₹5,00,00,000/- made under Section 68.

3.1 Identity and Genuineness Not in Dispute

The CIT(A) first noted that the AO’s own show cause notice was confined to questioning the creditworthiness of the lender. This itself indicated that:

  • The identity of M/s Synergy Tradelink was accepted.
  • The existence of the loan transaction was also accepted as such.

Thus, only the lender’s capacity to advance the loan remained in dispute.

3.2 Examination of Creditworthiness

The CIT(A) recorded that the assessee had placed the following on record for M/s Synergy Tradelink:

  • Ledger confirmation for the period 01.04.2022 to 31.03.2023
  • ITR acknowledgement for AY 2023-24
  • Audited financial statements for FY 2022-23
  • Tax audit report for AY 2023-24
  • Bank statement with HDFC Bank (Account No. 00060340030743) for relevant periods in April, May and June 2022

On review of these documents, the CIT(A) highlighted that: