KRISHNARAJAPETE SHIVANANJEGOWDA RAMEGOWDA,MANDYA DISTRICT vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1) MYSORE, MYSORE

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ITA 248/BANG/2026Status: DisposedITAT Bangalore08 July 2026AY 2017-188 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee had discharged the primary onus under Section 68 by proving the identity and genuineness of the transaction, which was routed through banking channels. Low returned income alone is not sufficient to reject creditworthiness when bank statements are available.

What were the facts?

The assessee, engaged in liquor sales, declared a total income of Rs. 27,38,760/-. The AO added Rs. 10,00,000/- as an unexplained cash credit from Shri Ganesh K, citing lack of creditworthiness of the lender.

What were the issues?

Whether the addition of an unsecured loan under Section 68 is justified when the lender's creditworthiness is questioned solely based on low returned income, despite the transaction being through banking channels and supported by documentation.

Which sections of the Income-tax Act were involved?

Section 68,Section 115BBE

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘SMC’ BENCH, BANGALORE

Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY

For Appellant: Ms. Suman Lunkar, CA
For Respondent: Shri Ganesh R Ghale, Standing Counsel for the Dept
Hearing: 03.06.2026Pronounced: 08.07.2026

IN THE INCOME TAX APPELLATE TRIBUNAL ‘SMC’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER

ITA No.248/Bang/2026 Assessment Year: 2017-18

Krishnarajapete Shivananjegowda Vs. The Dy. Commissioner of Ramegowda, Income Tax , Lakshmi Liquor Stores, Circle – 1(1), Hosaholalu Road, Near T.B Circle, Mysore. Krishnarajpet, Mandya District. Mandya – 571 426. PAN – ABVPR 0819 G APPELLANT RESPONDENT Assessee by : Ms. Suman Lunkar, CA Revenue by : Shri Ganesh R Ghale, Standing Counsel for the Dept. Date of hearing : 03.06.2026 Date of Pronouncement : 08.07.2026 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: This is an appeal filed by the assessee against the order passed by of the Ld. CIT(A) u/s 250 of the Act vide order dated 25/11/2025 for the asst. year 2017-18.

ITA No.248/Bang/2026 Page 2 of 8 2. The assessee in the memo of appeal has raised 06 grounds of appeal along with sub-grounds, which, for the sake of brevity and convenience, we are not inclined to reproduce here. The grounds raised by the assessee are interconnected and pertain to the additions made by the AO u/s 68 of the Act.

3.

The brief facts of the case on hand are that the assessee, an individual, is engaged in the business of sale of liquor. The assessee filed its ROI for the captioned AY on 31.08.2017, declaring a total income of Rs. 27,38,760/- only. The ROI was processed u/s 143(1) of the Act, and thereafter the case was selected for complete scrutiny under CASS.

4.

During the assessment proceedings, the AO noticed that the assessee had shown an unsecured loan of Rs. 10,00,000/- from Shri Ganesh K. Though the assessee furnished confirmation, PAN and ROI of the creditor, the AO, on verification, held that the creditor did not have sufficient creditworthiness to advance the said loan. Accordingly, the AO treated the loan of Rs. 10,00,000/- as unexplained cash credit u/s 68 of the Act, taxed the same u/s 115BBE of the Act and completed the assessment by determining total income at Rs. 37,38,760/- only.

5.

Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A).

6.

The assessee before the Ld. CIT(A) submitted that the addition of Rs. 10,00,000/- made u/s 68 of the Act was not justified. It was submitted that the assessee had borrowed the said amount from Shri Ganesh Gowda K during the F.Y. 2016-17 through RTGS, which was duly credited to the

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ITA No.248/Bang/2026 Page 3 of 8 assessee’s bank account on 27.02.2017. The assessee had furnished a confirmation letter, PAN and a copy of the ROI of the lender before the Ld. AO. It was further submitted that the said loan was also repaid through banking channel. Therefore, the identity of the creditor, genuineness of the transaction and creditworthiness stood proved. The assessee further contended that the AO made the addition merely on the basis of the lender's low returned income and bank balance, without making a proper enquiry into the source of funds available with the lender. It was also submitted that if the AO was not satisfied with the confirmation and other documents, he ought to have made a direct enquiry from the lender and should have provided an opportunity to the assessee to cross- examine the lender. Accordingly, it was pleaded that the addition u/s 68 of the Act and consequential application of section 115BBE of the Act were liable to be deleted.

6.1 However, the Ld. CIT(A) dismissed the assessee's appeal. The Ld. CIT(A) observed that during assessment proceedings, the AO had noticed unsecured loan of Rs. 10,00,000/- from Shri Ganesh Gowda K. Though the assessee furnished confirmation letter and copy of ROI of the creditor, the AO called for information from the concerned ITO. On verification, it was found that the creditor had declared income of only Rs. 4,570/- for A.Y. 2016-17 and Rs. 15,640/- for A.Y. 2017-18. It was also noted that the creditor had cash in hand of Rs. 2,30,174/- and bank balance only of Rs. 927/- and no indication of accumulated savings or capital was found.

6.2 The Ld. CIT(A) held that mere filing a confirmation letter, PAN and ROI was not sufficient to prove the creditworthiness of the creditor. The Ld. CIT(A) further held that the assessee failed to produce the bank

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ITA No.248/Bang/2026 Page 4 of 8 statement of the creditor showing withdrawal of Rs. 10,00,000/- from the creditor’s bank account and failed to establish the capacity of the creditor to advance the loan. Accordingly, the Ld. CIT(A) held that the assessee failed to discharge the onus cast u/s 68 of the Act. Therefore, the addition of Rs. 10,00,000/- as unexplained cash credit u/s 68 of the Act was confirmed and taxation u/s 115BBE of the Act was also upheld. 7. Aggrieved by the order of the Ld. CIT(A), the assessee filed an appeal before us.

8.

The Ld. AR before us has filed a paper book running from page Nos. 1 to 105 and one page chart having ledger of Mr. K Ganesh Gowda. The AR contended that the assessee is an individual engaged in the business of retail sale of liquor and is regularly assessed to tax. The books of account of the assessee were duly audited u/s 44AB of the Act. During the course of business, the assessee had borrowed a sum of Rs. 10,00,000/- from Shri K. Ganesh Gowda, who was a friend of the assessee and also engaged in the liquor business. The said loan was received through RTGS on 27.02.2017 and was credited to the assessee’s Karnataka Bank current account. The assessee had filed before the lower authorities the loan confirmation, PAN, ITR-V and bank statement of the lender. The assessee has also filed before the Tribunal the one-page ledger account of Shri Ganesh in the books of the assessee to show that the transaction was duly recorded in the regular books of account.

8.1 It was further submitted that the identity of the lender was never in dispute, as the lender had confirmed the loan and had also furnished his PAN. The genuineness of the transaction was also established, since the loan was received through banking channel by RTGS. The bank

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ITA No.248/Bang/2026 Page 5 of 8 statement of Shri Ganesh Gowda clearly reflected debit of Rs. 10,00,000/- and there was no cash deposit in his bank account immediately before advancing the loan. Therefore, the finding of the Ld. AO that the transaction was not genuine was based only on suspicion and not on any adverse material.

8.2 The assessee submitted that the lower authorities rejected the explanation merely because the returned income of the lender was low. It was argued that the current year’s returned income alone cannot be the basis to decide the capacity of a person to advance money. The lender’s bank statement showed availability of funds before the amount was advanced to the assessee. If the AO had any doubt, he could have summoned the lender u/s 131 of the Act or called for details u/s 133(6) of the Act. Without carrying out such enquiry, the addition could not have been made merely by doubting the creditworthiness of the lender.

8.3 The Ld. AR further submitted that the assessee had discharged the initial onus cast upon him u/s 68 of the Act by proving the identity of the creditor, genuineness of the transaction and prima facie creditworthiness. Once these documents were filed, the burden shifted on the Department to bring contrary material on record. In the present case, no such contrary material was brought by the Ld. AO. Therefore, the addition of Rs. 10,00,000/- u/s 68 of the Act and consequential taxation u/s 115BBE of the Act were not sustainable.

8.4 The Ld. AR also relied upon the decision of Hon’ble Gauhati High Court in the case of Khandelwal Constructions vs. CIT, 227 ITR 900, for the proposition that the enquiry u/s 68 of the Act must be reasonable and

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ITA No.248/Bang/2026 Page 6 of 8 in consonance with principles of natural justice, and that addition cannot be made on the basis of incomplete or perfunctory enquiry. Reliance was also placed on the decision in Udayan Grover vs. NFAC (ITA NO. 2880/MUM/2023), wherein addition u/s 68 of the Act was deleted when the assessee had filed confirmation, bank statement and other supporting documents to prove the loan transaction. Accordingly, it was prayed that the addition of Rs. 10,00,000/- sustained by the Ld. CIT(A) may be deleted.

9.

The Ld. DR, on the contrary, vehemently supported the orders of the lower authorities and submitted that the assessee failed to establish the creditworthiness of the lender. Mere filing of confirmation, PAN and ITR-V was not sufficient when the returned income and bank balance of the lender did not justify the loan of Rs. 10,00,000/-. Accordingly, the Ld. DR submitted that the addition made u/s 68 of the Act and sustained by the Ld. CIT(A) deserves to be upheld.

10.

We have heard the rival submissions of both the parties and perused the materials available on record. The only issue is with regard to addition of Rs. 10,00,000/- made u/s 68 of the Act in respect of loan received from Shri K. Ganesh Gowda.

10.1 In the present case, the assessee had filed the confirmation letter of the lender, PAN, ITR-V and bank statement of the lender. The loan was received through RTGS on 27.02.2017 and was credited in the assessee’s bank account. The lender has also confirmed the transaction. The bank statement of the lender shows that the amount was paid through banking channel and there was no cash deposit immediately before giving the loan.

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ITA No.248/Bang/2026 Page 7 of 8 Thus, the identity of the creditor and genuineness of the transaction stand proved.

10.2 The addition has been sustained mainly on the ground that the returned income of the lender was low. In our considered view, low returned income by itself cannot be the sole basis to reject the creditworthiness, particularly when the transaction is through banking channel and the lender’s bank statement was available on record. If the Ld. AO had any doubt regarding the source of the lender, he could have made further enquiry from the lender directly. However, no such adverse material has been brought on record.

10.3 Considering the facts of the case, we hold that the assessee has discharged the primary onus cast upon him u/s 68 of the Act. Accordingly, the addition of Rs. 10,00,000/- made u/s 68 of the Act is deleted. Consequently, taxation u/s 115BBE of the Act also does not survive. The ground raised by the assessee is allowed.

11.

In the result, the appeal of assessee is allowed.

Order pronounced in court on 8th day of July, 2026

Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 8th July, 2026 / vms /

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ITA No.248/Bang/2026 Page 8 of 8

Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order

Asst. Registrar, ITAT, Bangalore

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