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Facts
The assessee, Urbane Inn LLP, appealed against an addition of Rs. 38 lakhs made to its income for AY 2016-17, which was treated as unexplained cash credit in the form of unsecured loans. The Assessing Officer (AO) and the CIT(A) treated these loans as unexplained due to discrepancies in the creditworthiness of the lenders, such as low income in their ITRs, loans given without interest, and same-day reverse entries in bank statements.
Held
The Tribunal held that the assessee had sufficiently demonstrated the creditworthiness of the loan creditors by providing their bank statements, which showed the source of funds received by the creditors. The Tribunal found that the creditors had received funds through banking channels from identified parties before advancing them to the assessee, thus establishing the genuineness of the transaction. Therefore, the addition made by the AO and confirmed by the CIT(A) was not sustainable.
Key Issues
Whether unsecured loans amounting to Rs. 38 lakhs were genuine and properly explained by the assessee, or if they constituted unexplained cash credits under Section 68 of the Income Tax Act, 1961.
Sections Cited
143(3), 250, 68
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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax, Appeal (hereinafter referred to as “CIT(A)”) dated 29.10.2025 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2016-17.
The grounds raised by the assessee are as under:
“1.1 The order u/s 250 passed on 29.10.2025 for AY 2016-17 by Addl./JCIT(A), Thiruvananthapuram for short "Ld. CIT(A)) confirming the order u/s. 143(3) passed on 26.12.2018 by ITO, Ward-5(3)(2), A'bad making the addition of Rs.38 lakhs as unexplained cash credit, is wholly illegal, unlawful and against the principles of natural justice. 2.1 The ld. CITIA) has grievously erred on law and or on facts in not considering at all the written submissions with documents/evidence uploaded during the course of appellate proceedings and thereby erroneously observing that the appellant had not provided any details relating to the unsecured loan creditors. The appellant deny the observations made and conclusion reached by CITIA) in the impugned order. Thus, there is gross violation of the principles of natural justice. 3.1 The ld. CITIA) has grievously erred in law and or on facts in upholding the addition of Rs. 38 lakhs made by AO towards unsecured loans from two parties as unexplained credit u/s 68 of the Act. 3.2 That in facts and circumstances of the case the Id. CIT(A) ought not to have upheld the addition of Rs. 38 lakhs made by AO towards unsecured loans from two parties as unexplained credit u/s 68 of the Act.”
The solitary issue in the present appeal relates to addition made to the income of the assessee of Rs.38 Lakhs pertaining to unsecured loan taken by the assessee treated as unexplained cash credits u/s.68 of the Act.
We have heard both the parties and have also gone through the orders of the authorities below. The unsecured loans of Rs.38 Lakhs pertained to the following persons: i. Abidhussain Kamarali Dauwa - Rs.10,00,000/- ii. Abidhussain Khadimhussain Dauwa - Rs.10,00,000/- iii. Delicial Hotels Pvt. Ltd. - Rs.18,00,000/- In discharge of its onus to prove the genuineness of the said loans, the assessee submitted confirmation, income tax return for the persons from whom the unsecured loan was taken and also the bank statements. It is a fact on record that all the loans were given through banking channels. It is only the creditworthiness of the parties who had advanced unsecured loans that was stated to be not proved by the assessee and for this reason alone, the unsecured loans were treated as unexplained or ingenuine by both the AO and the Ld. CIT(A).
In this regard, Ld. Counsel for the assessee pointed out that from the documents filed by the assessee, the AO / CIT(A) arrived at the findings of creditworthiness not being proved on account of several discrepancies noted in the documents filed by the assessee, which, he pointed out find mention at para 7.5 and 7.6 of his order as under:
| to the assessee | 2016-17 | 2015-16 | 2014-15 | |||
| Abid Hussain Kamarali Dauwa | 10,00,000/- | Nil | 2,70,000/- | 2,70,000/- | Return not filed as PAN generate on 12.10.2015 | Reverse entries observed on the same day |
| Abidhusain Khadimhussain Dauwa | 10,00,000/- | NIL | 2,40,620/- | 2,40,000/- | Return not filed as PAN generate on 12.10.2015 | Reverse entries observed on the same day |
| Delicial Hotels Pvt. Ltd. | 18,00,000/- | NIL | (-) 34,85,086/- | (-) 2248047/- | (-) 5614653/- | Bank Statement not provided |
| TOTAL | 38,00,000/- | - | - | - |
7.6 From the aforesaid facts the genuineness and creditworthiness of the persons was not proved from whom assessee have taken unsecured loan, as several discrepancies were noted and the same are mentioned as hereunder: a. The return income in for the individuals is very less than the loans given by aforesaid persons b. The return incomes for consecutive previous 3 years i.e. for AY 2014-15 to 2016-17 of these persons create a lot of doubt on the huge loan transaction. c. All these persons have given unsecured loan without any interest, Which is out of normal understanding as to why a person will invest and give huge loans without any interest to a loss making entity. d. The same day reverse entries are observed in the bank statement i.e., the amount was credited first and on the very same day it was debited and thereby credited in the assessee's account. Further, the routine running balance is also less as compare to the amount of loan given. e. In the individuals case depositors filed salary return below taxable and also PAN was generated on October-2015. And furnished the Balance sheet creating bogus unsecured loans and loans and advance in the name of the assessee. From this the creditworthiness not proved the depositors. f. In the case of Delicial Hotels pvt. Ltd., on verification of the audit report furnished by the assessee, it is seen that in the head of loans and advances there are outstanding loans and advance of Rs. 16.85 lakhs, where as in the books of the assessee it is outstanding of Rs. 18 lakhs. Further in the books of depositor loans and advance not mention to whom given. On these facts it is cleared that the assessee has shown bogus unsecured loan in his books of accounts.”
Referring to the same, he pointed out that the AO primarily noted the return of income of the individuals who had given loans to be far less than the loan given. He found loan to be given without interest which he noted to be abnormal and he noted from the bank statements of the parties who had advanced loans that in routine there was a very less running balance accounts of these parties and the amount was credited first and on the very same day, it was debited for advancing loan to the assessee. He pointed out that the AO also noted in the case of Delicial Hotels Pvt. Ltd., the financial statement of the said party to reflect outstanding loans and advances of Rs.16.85 Lakhs, whereas, in the books of accounts of the assessee amount outstanding was Rs.18 Lakhs. From the order of the Ld. CIT(A), the Ld. Counsel for the assessee pointed out that he categorically noted the assessee to have proved the identity of the persons from whom unsecured loans were received, but, having failed to prove the genuineness and creditworthiness from whom the loans were received. He pointed out that the Ld. CIT(A) reiterated the findings of the AO with regard to there appearing credit and debit entry on the same date in the bank statement of two unsecured loan credits, the creditors showing very low return of income and no interest being paid on Inn LLP vs. ITO] A.Y. 2016-17 - 6 – the unsecured loans and also no purpose being stated by the assessee for taking loans.
Ld. Counsel for the assessee, however, contended that the assessee had suitably demonstrated the creditworthiness of all three loan creditors by filing their bank statements and also demonstrating from the bank statement that the credits immediately before the advances to the assessee had come from identified parties. With respect to the amount of Rs.10 Lakhs received from Abid Hussain Kamarali Dauwa our attention was drawn to the copy of the HDFC Bank statement of the said party placed before us at paper book page no.65 pointing out there from that Rs.10 Lakhs was advanced to the assessee from Rs.5 Lakhs each received from two persons; Dinesh Mansukhbhai B Halala & Punabhai Madhbhai B Halala, which names, he pointed out, found clearly mentioned in the said bank statements. With respect to Rs.18 Lakhs received from Delicial Hotels Pvt. Ltd., he drew our attention to HDFC bank statement of the said party placed at paper book page no.75 pointing out that the said amount was advanced to the assessee and from amount received from ELDORADO MOTELS PVT. LTD., which fact again, he pointed out, was clearly mentioned in the said bank statement. With respect to the unsecured loan of Rs.10 Lakhs received from Abid Hussain Kamarali Dauwa, he drew our attention to the paper book and pointed out that the said amount was advanced to the assessee from amount received from Poonamben Babubhai R Upapara Rs. Inn LLP vs. ITO] A.Y. 2016-17 - 7 – 5,00,000/-, Jatinbhai Himmatbhai Rangpariya Rs.2,00,000/- and Kailasben Kapilbhai Rangparia Rs.3,00,000/-, which he pointed out clearly found mention in the HDFC Bank statement.
It is evident from the above that the records before the Revenue Authorities clearly reflected the source, from which, the unsecured loan creditors had advanced money to the assessee. The source of the loan creditors being identified and having been received by them through banking channels, there is no reason to question the creditworthiness of the loan creditors. The case of the Revenue entirely rests on the fact that the loan creditors otherwise had no source or balance in their running accounts and that the loan creditors received money for advancing to the assessee immediately before the transaction of advance was done with the assessee. Considering the fact that the parties or persons from whom the amount was received by the loan creditors for advancing to the assessee has been clearly identified and the amounts having been credited in the bank account of the loan creditors thorough banking channels and not by cash, the mere fact of the amounts being received immediately before advancing the same to the assessee can in no circumstance cast any doubt on the genuineness of the transaction.
In the light of the above, we hold that there is no case made out by the Revenue for holding that the creditworthiness of the unsecured loans was failed to be established. The orders of the authorities below, therefore, treating the unsecured loans as unexplained is, accordingly, set aside. The addition of Rs.38 Lakhs is directed to be deleted.
In the result, appeal filed by the assessee is allowed.
This Order pronounced on 10/04/2026
Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 10/04/2026 S. K. SINHA True Copy आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant ��यथ� / The Respondent. 2. 3. संबंिधत आयकर आयु� / Concerned CIT आयकर आयु�(अपील) / The CIT(A)- 4. 5. �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER,