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Facts
The assessee, an individual, filed his return for AY 2016-17 admitting total income. The case was selected for limited scrutiny to verify unsecured loans. The AO noticed a large sum of unsecured loans and called for details. The assessee provided some details, but the AO found discrepancies, especially regarding the genuineness and identity of creditors, leading to additions under Section 68.
Held
The Tribunal held that additions made by the AO for unsecured loans that were brought forward from earlier years and appeared as suspense accounts could not be sustained as they were not new credits in the year under consideration. Further, for fresh loans, the assessee had discharged the onus of proving identity, genuineness, and creditworthiness by providing necessary documentation and routing through banking channels.
Key Issues
Whether the addition made by the AO on account of unsecured loans (including brought forward amounts and suspense accounts) under Section 68 is justified when the assessee has provided evidence of identity, genuineness, and creditworthiness.
Sections Cited
142(1), 131, 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad “A” Bench, Hyderabad
करदाता का प्रतततितित्व/ : Shri Ajay Tulsiyan, C.A. and Assessee Shri Kapil Shah, C.A. Represented by राजस्व का प्रतततितित्व/ : Ms. U. Mini Chandran. Department Represented by CIT-DR सुिवाई समाप्त होिे की ततति/ : 17.02.2026 Date of Conclusion of Hearing घोर्णध की तधरीख/ : 11.03.2026 Date of Pronouncement O R D E R PER MANJUNATHA G., A.M : This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [in short “NFAC”], Delhi, dated 24.06.2025, pertaining to the assessment year 2016-17. 2 Murad Khetani
The brief facts of the case are that, the assessee is an individual, who filed his return of income for A.Y. 2016-17 on 10.02.2017 admitting total income of Rs. 1,08,64,820/-. The case was selected for limited scrutiny under CASS to verify the issue as to whether unsecured loans are genuine and from disclosed sources. During the course of assessment proceedings, the A.O. noticed that, as per the ITR, the assessee has shown unsecured loans as on 31.03.2016 to the tune of Rs. 23,51,23,750/-. The A.O. called upon the assessee to furnish details of unsecured loans. In response, the assessee has furnished breakup of unsecured loans and the names of the loan creditors. As per the details submitted by the assessee, out of total unsecured loans outstanding as on 31.03.2016, the opening balance as on 01.04.2015 was at Rs. 15,82,10,000/-. Fresh unsecured loans taken during the financial year 2015-16 relevant to A.Y. 2016-17 was for Rs. 10,07,50,000/-. Total loan repaid during the financial year 2015-16 relevant to A.Y. 2016-17 was for Rs. 2,60,30,000/- and closing balance as on 31.03.2016 was for Rs. 23,26,80,000/-. The A.O. vide notice issued under Section 142(1) of the Act dated 13.02.2018 called upon the assessee to furnish the address and PAN details of the loan creditors. In response, the assessee did not 3 Murad Khetani submit any details. Therefore, summons under Section 131, dated 19.12.2018 were issued to the assessee. In response to the summons, the assessee filed a letter on 24.12.2018 requesting for an adjournment. The A.O., after taking relevant submissions of the assessee, observed that, though the assessee has submitted most of the loans are brought forward balances from the earlier financial years and only a few loans were taken in financial year 2015-16, no documentary evidence was submitted by the assessee to substantiate his claim. However, it is noticed that, the ITR filed by the assessee for A.Y. 2014-15 was selected for complete scrutiny and assessment was completed on 14.12.2016 by DCIT, Circle 10(1), Hyderabad. The claim of the assessee that most of the loans were only brought forward balances from earlier years were verified from the details of loan creditors as on 31.03.2014 and from the above, it is noticed that, as on 01.04.2015, loans from three parties were not reflected in the list of creditors. Further, it is pertinent to note that, in the ITR filed by the assessee for A.Y. 2015-16, the unsecured loans were shown as nil. In this regard, it was submitted by the assessee that the ITR for A.Y. 2015-16 was filed as “No books of account case”. As the details of the creditors as on 31.03.2015 are 4 Murad Khetani not available from the ITR, the details of creditors as on 31.03.2014 were taken into account to establish the genuineness of the brought forward balance of creditors. Further, it is seen from the list of creditors as on 31.03.2016 that an amount of Rs. 20,00,000/- was shown as suspense and in absence of the identity of the loan creditors, the amount of Rs. 20,00,000/- cannot be considered as genuine. Therefore, taking into account the relevant details, the A.O. has worked out loans taken by the assessee by considering opening balance as on 31.03.2014 which were not reflected in the list of unsecured loans and fresh unsecured loans taken during the year and also amount of ‘suspense creditors’ and has worked out total unexplained credit of Rs. 11,14,10,000/- and added to the total income of the assessee under Section 68 of the Income-tax Act, 1961.
Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has reiterated his submissions made before the A.O. and argued that, out of the total unsecured loans appearing in the balance sheet as on 31.03.2016, only an amount of Rs. 10,07,50,000/- was taken during the financial year, for which the assessee has furnished 5 Murad Khetani relevant details, including the names and addresses of the loan creditors. The assessee had also furnished details of individual loan creditors and claimed that, the A.O. even made addition towards opening balance brought forward from earlier financial years, including suspense account, on the ground that, the identity of the creditors is not proved. The assessee has also furnished certain additional evidence, including confirmations from the parties, along with their ledger accounts, bank statements and ITRs filed for the relevant assessment years. The additional evidences filed by the assessee have been forwarded to the A.O. for his remand report. The A.O. vide remand report dated 22.02.2020 commented upon the additional evidence filed by the assessee and the authenticity of the evidences to establish identity, genuineness of the transactions and creditworthiness of the loan creditors. The Ld. CIT(A), after considering the relevant submissions of the assessee and also taking note of various evidence filed by the assessee, partly allowed the appeal filed by the assessee, where the Ld. CIT(A) deleted the additions made towards unsecured loan taken from Shri Amin Virani in the earlier financial year for Rs. 65,00,000/- and unsecured loan taken from Shri Sajid Khan and Shri Akshay Puri 6 Murad Khetani for Rs. 27,50,000/-. However, confirmed additions made by the A.O. towards ‘suspense account’ of Rs. 30,60,000/- and fresh unsecured loans taken from M/s. Infinite Media Holdings for Rs. 8,60,00,000/-, from Mr. Abdul Sultan Panjwani for Rs. 50,00,000/- and from Aravind Agarwal for Rs. 70,00,000/-.
Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.
The learned counsel for the assessee, Shri Ajay Tulsiyan, C.A. and Shri Kapil Shah, C.A., referring to the assessment order passed by the A.O. and the addition made towards unsecured loans under Section 68 of the Act, submitted that, the A.O. has made addition of Rs. 10,60,000/- towards Suspense (Vistas account difference), even though the above account was carried forward from earlier financial years for which the assessee has furnished relevant details, including copies of financial statements and schedule of loan creditors as on 31.03.2015. The learned counsel for the assessee further submitted that, the A.O. has erred in making addition towards unsecured loans taken from Sri Aravind Agarwal for Rs. 70,00,000/- even though the assessee has discharged the identity, 7 Murad Khetani genuineness and creditworthiness of the loan creditor by filing relevant details, including confirmation from the loan creditor, bank statements of the loan creditor, ledger and bank statement evidencing repayment of loan in the subsequent financial years to prove the identity. The learned counsel for the assessee further submitted that, the assessee has also taken unsecured loan of Rs. 50,00,000/- from Sri Abdul Sultan Panjwani during the A.Y. 2016- 17, for which he has filed relevant details, including the confirmations from the loan creditor, bank account statements, and ITR filed for the relevant assessment years. The assessee had also explained before the A.O. that the loan creditor was demised and his legal heir, Ms. Habiba Abdul Panjwani, has filed confirmation letter stating that Shri Abdul Sultan Panjwani has died on 13.04.2017 and the loan has been given through proper banking channel. The assessee has also furnished relevant details of repayment of loan in subsequent years along with relevant bank account statement.
The learned counsel for the assessee, further referring to unsecured loans of Rs. 8,60,00,000/- obtained from M/s. Infinite Media Holdings, submitted that, the assessee has furnished confirmation letter from the loan creditor, bank statement of the 8 Murad Khetani assessee, ITR and bank statements of the loan creditor to substantiate the credits received by the assessee. Further, the A.O. never disputed the fact that the assessee has furnished all the details. However, rejected the explanation on the ground that the creditor has shown meagre income or loss for the year under consideration and failed to establish the creditworthiness. However, fact remains that to establish creditworthiness, the income declared for the year under consideration alone is not relevant and what is relevant is the other evidence filed by the assessee, including source of said funds. In the present case, the assessee has furnished relevant bank statements and proved that, the loan has been paid through proper banking channel and from the above, it is very clear that the creditworthiness of the loan creditor has been established. The A.O. and Ld. CIT(A), without appreciating the relevant facts, simply sustained the addition made by the A.O. In this regard, the learned counsel for the assessee relied upon certain judicial pronouncements, including the decision of the Hon'ble High Court of Bombay in the case of Principal CIT vs Ami Industries India Private Limited (2020) 424 ITR 219 (Bombay). The assessee had also relied on the decision of the Hon'ble Gujarat High Court in the case of CIT 9 Murad Khetani vs Ayachi Chandrashekhar Narsingji (2014) 221 Taxman 146 (Gujarat), and also the decision of the Hon'ble Delhi High Court in the case of CIT vs Usha Stud Agricultural Farms Ltd. (2009) 283 ITR 77 (Delhi).
The learned CIT-DR for the Revenue, Ms. U. Mini Chandran, on the other hand, supporting the order of the Ld. CIT(A), submitted that, the assessee could not furnish any details before the A.O., which is evident from the assessment order passed by the A.O., where the assessee, except filing the details of unsecured loans, no further details have been furnished to establish the identity and creditworthiness of loan creditors and genuineness of transactions. The case was selected for scrutiny for verifying unsecured loans and the A.O. has provided sufficient time to the assessee to furnish details, however, no evidence was filed to substantiate the unsecured loan. Further, the assessee has filed return of income for A.Y. 2015-16 as “No books category” and from the above, it is very clear that there is no detail as to unsecured loan as on 31.03.2015. The A.O., after considering relevant facts, has rightly considered unsecured loans appearing as on 31.03.2014 and reported in ITR filed for A.Y. 2014-15 and then worked out the unexplained cash 10 Murad Khetani credit by taking into account the fresh credits taken during the year. The Ld. CIT(A), after considering relevant facts, has rightly held that, the assessee has failed to prove the creditworthiness, especially in the case of unsecured loans taken from M/s. Infinite Media Holdings for Rs. 8,60,00,000/-, where the issue has been discussed in light of financial statements of the loan creditor to establish the creditworthiness of the party. Since the assessee has failed to establish the creditworthiness of the loan creditors and in case of suspense account, the identity of the loan creditor has not been proved, the A.O. has rightly made addition towards unsecured loans. In this regard, she relied upon the decision of ITAT Ahmedabad Bench in the case of Shreem Packaging Products Pvt. Ltd. vs. ITO (2017) 81 taxmann.com 308.
We have heard both parties, perused the material available on record and have gone through the orders of the authorities below. We have also carefully considered the relevant reasons given by the A.O. to make addition towards unsecured loans under Section 68 of the Act, as unexplained cash credit. Admittedly, during the course of assessment proceedings, the assessee could not furnish complete details of loan creditors, even though the assessee has furnished 11 Murad Khetani details of identity of loan creditors and corresponding bank statements to prove that, the loan has been received through proper banking channel. But before the Ld. CIT(A), the assessee has filed complete details of loan creditors, including the name and address along with PAN numbers of the loan creditors, confirmation letters from the loan creditors, bank account statements of the loan creditors along with their financial statements and established identity, genuineness of transactions and creditworthiness of the parties. The Ld. CIT(A) confirmed additions made by the A.O. towards unsecured loans taken from M/s. Infinite Media Holdings, Sri Abdul Sultan Panjwani and Sri Aravind Agarwal and from these three parties, the assessee has received loan in the financial year 2015-16 relevant to A.Y. 2016-17. The Ld. CIT(A) had also confirmed additions made by the A.O. towards unsecured loans being ‘suspense’ (Vistas account difference) for Rs. 10,60,000/- and ‘suspense’ account for Rs. 20,00,000/- on the ground of not proving the identity of the loan creditors. However, in respect of these two additions, it is an undisputed fact that both the suspense accounts are carried forward from earlier financial years, which is evident from the relevant list of loan creditors of earlier financial years, 12 Murad Khetani which is available in the paper book filed by the assessee. Therefore, it is necessary for us to examine the reasons given by the A.O. and upheld by the Ld. CIT(A) towards additions made under Section 68 of the Income-tax Act, 1961, in respect of unsecured loans.
The provisions of Section 68 of the Income-tax Act, 1961 deal with unexplained cash credit, as per which, where any sum is found credited in the books of the assessee maintained for the previous year and the assessee offers no explanation about the nature and source thereof and the explanation offered by him is not, in the opinion of the A.O., satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. From the provisions of Section 68 of the Act, it is very clear that if any credit appearing in the books of account of the assessee maintained for that year and the assessee has not offered any satisfactory evidence, then the credits may be charged to income-tax as income of the assessee for that financial year. In the present case, the A.O. has made addition towards unsecured loans (suspense accounts) which have been brought forward from earlier financial years as claimed by the assessee and also proved by filing relevant evidences. Since the credits being suspense (Vistas account 13 Murad Khetani difference) and suspense account in aggregating to Rs. 30,60,000/- have not appeared in the books of account of the assessee maintained for the financial year under consideration, in our considered view, the additions made by the A.O. towards opening balance of unsecured loans (suspense account) cannot be sustained. This legal principle is supported by the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Jagatkumar Satishbhai Patel (2014) 45 taxmann.com 441 (Gujarat), wherein it has been clearly held that creditors appearing in the books of account of the assessee had brought forward from earlier financial years, could not have been added during the year under consideration. A similar view has been considered by the Hon'ble High Court of Delhi in the case of CIT vs. Usha Stud Agricultural Farms Limited (supra), wherein it has been clearly held that creditors appearing in the books of account of the assessee, were brought forward from earlier financial years and therefore, the A.O. could not have made additions during the year under consideration.” and under these circumstances, the A.O. was not justified in making the addition under Section 68 of the Act. Since the addition made by the A.O. towards suspense (Vistas account difference) for Rs. 10,60,000/- and suspense account for 14 Murad Khetani Rs. 20,00,000/- in aggregate for Rs. 30,60,000/-, represents opening balance of credit brought forward from earlier financial year 2014-15, in our considered view, the addition made by the A.O. under Section 68 of the Act to the extent of Rs. 30,60,000/- cannot be upheld. Therefore, we direct the A.O. to delete the addition made to an extent of Rs. 30,60,000/- towards Suspense (Vistas account difference) and Suspense account.
Coming back to the addition of unsecured loan received from M/s. Infinite Media Holdings for Rs. 8,60,00,000/-, unsecured loan received from Shri Abdul Sultan Panjwani for Rs. 50,00,000/- and unsecured loan received from Shri Aravind Agarwal for Rs. 70,00,000/-. Admittedly, all three loan credits were received in the financial year 2015-16 relevant to A.Y. 2016-17. In respect of loan received from Shri Aravind Agarwal amounting to Rs. 70,00,000/-, the assessee has furnished details of loan creditor along with his PAN, confirmation letter from the creditor, bank statements of the assessee, bank statements of the loan creditor, ledger and bank statements evidencing the repayment of loan in the subsequent year. From the above, it is undisputedly clear that the assessee has proved identity of the loan creditor and also the genuineness of the 15 Murad Khetani transaction. In respect of creditworthiness of the loan creditor, there is no dispute, because the transactions were routed through proper banking channel and also the loan has been repaid in the subsequent financial year. Since the assessee has discharged the onus cast upon him under Section 68 of the Act, in our considered view, the A.O. ought not to have made addition towards unsecured loan received from Shri Aravind Agarwal for Rs. 70,00,000/-. Once the loan taken has been evidently repaid in the same financial year or in the subsequent financial year, in our considered view, it is a clear case of discharging the burden of establishing the identity and creditworthiness of the parties as held by the Hon'ble Gujarat High Court in the case of CIT vs. Ayachi Chandrashekhar Narsingji (supra) and CIT vs. Karaj Singh (2014) 15 taxmann.com 70 (Hon'ble High Court of Punjab and Haryana). A similar view has been taken by the coordinate bench of the Tribunal of ITAT, Delhi Bench in the case of JS Exim Vs. DCIT in ITA No. 854/Del/2020. Therefore, we direct the A.O. to delete the addition made towards unsecured loans received from Sri Aravind Agarwal for Rs. 70,00,000/-.
16 Murad Khetani
In respect of unsecured loan from Sri Abdul Sultan Panjwani amounting to Rs. 50,00,000/-, there is no dispute with regard to the fact that the assessee has furnished confirmation from the legal heir of the loan creditor, namely, Ms. Habiba Abdul Panjwani, because the loan creditor Shri Abdul Sultan Panjwani died on 13.04.2017, which is evident from the copy of Death Certificate, which is available in the paper book filed by the assessee. Further, the loan has been received through proper banking channel, which is evident from the relevant bank account statement of the assessee and the bank account statement of the loan creditor. The loan amount received from Shri Abdul Sultan Panjwani has been repaid in the subsequent financial year, which is evident from the relevant bank account statement. Since the loan has been routed through proper banking channel and the assessee has also furnished relevant evidence for repayment of loan, in our considered view, the addition cannot be made under Section 68 of the Act when the said loan has been subsequently repaid through proper banking channel, as held by the Hon'ble Gujarat High Court in the case of CIT vs. Ayachi Chandrashekhar Narsingji (supra). Therefore, we direct the A.O. to 17 Murad Khetani delete the addition made towards unsecured loan received from Shri Abdul Sultan Panjwani for Rs. 50,00,000/-.
Coming back to unsecured loan of Rs. 8,60,00,000/- from Infinite Media Holdings. It is an admitted fact that during the course of appellate proceedings, the assessee has submitted confirmation letter from the loan creditor, bank statements of the assessee, ITR and bank statements of the loan creditor to prove the identity of the loan creditor, genuineness of the transaction and the creditworthiness of the party. Although the A.O. has accepted the fact that, the assessee has furnished all these evidences, but made addition only on the ground that, the assessee has failed to prove the creditworthiness of the transaction and the said finding has been recorded on the basis of income reported in the ITR filed for the year under consideration. In our considered view, the income reported by the loan creditor for any particular assessment year cannot be the reason for doubting the creditworthiness of the loan creditor, more particularly when the said loan has been routed through proper banking channel. In our considered view, income of a person alone cannot be the criteria to judge the creditworthiness of a person and his capability to advance the loan. The 18 Murad Khetani creditworthiness can be established by showing the source from where the money has been paid by the creditor which may be either out of his net worth or income or out of loan received, as held by the Hon'ble Bombay High Court in the case of Principal CIT vs. Ami Industries India Pvt. Ltd (supra). A similar view has been held by the ITAT, Delhi Bench in the case of Prayag Polytech Pvt. Ltd. vs. ACIT in order dated 07.11.2019. Since the assessee has discharged his onus by filing relevant details, in our considered view, the A.O. ought not to have made addition towards unsecured loans received from M/s. Infinite Media Holdings, as unexplained cash credit under Section 68 of the Act, as held by the Hon'ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd., (2009) 319 ITR 5 (SC) wherein it has been clearly held that, once the identity of the loan creditor has been proved by filing relevant evidences, then the Department is free to reopen the case of the loan creditor, but the sum received from the loan creditor cannot be regarded as undisclosed income of the assessee. Therefore, we direct the A.O. to delete the addition made towards loan taken from M/s. Infinite Media Holdings.
19 Murad Khetani
In this view of the matter and considering the facts and circumstances, we are of the considered view that, the assessee has discharged the burden by filing various evidences to prove the unsecured loans received during the year under consideration. The A.O., without appreciating relevant facts, simply made addition towards unsecured loans received by the assessee. The Ld. CIT(A), although accepted the fact that the assessee has furnished relevant evidence, but sustained additions only on the ground that, the creditworthiness of the parties has not been discharged. Since the assessee has discharged the identity, genuineness of transaction and creditworthiness of the parties, in our considered view, the addition made by the A.O. cannot be upheld. Thus, we set aside the order of the Ld. CIT(A) and direct the A.O. to delete the addition made towards unsecured loans under Section 68 of the Income-tax Act, 1961. 20 Murad Khetani
In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 11th March, 2026. श्री विजय पाल राि (मंजूनाथ जी) (VIJAY PAL RAO) (MANJUNATHA G.) उपाध्यक्ष /VICE PRESIDENT लेखा सदस्य/ACCOUNTANT MEMBER