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Facts
The assessee engaged in wholesale and retail trade of waste and scrap materials for recycling, filed an income return for AY 2018-19. The case was selected for limited scrutiny on the issue of unsecured loans. The Assessing Officer (AO) added Rs. 2,28,90,059/- as unexplained cash credit under section 68 of the Income Tax Act, 1961, treating unsecured loans as not genuine.
Held
The Tribunal noted that the assessee had provided PAN and Aadhaar cards of the lenders, and the loans were recorded in the books of accounts and audited. The AO had not rejected the books of accounts but added the loans as unexplained cash credit due to lack of creditworthiness proof for some lenders. The Tribunal opined that the AO should have provided an opportunity to cross-examine the lenders or issued notices under section 133(6) to verify their creditworthiness and genuineness of transactions.
Key Issues
Whether the addition of Rs. 2,28,90,059/- as unexplained cash credit under section 68 of the Income Tax Act is justified without giving the assessee an opportunity to cross-examine the lenders or verify their creditworthiness by the AO.
Sections Cited
68, 143(2), 142(1), 1115BEE, 143(3), 144B, 133(6), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
This Appeal at the instance of the assessee is directed against the order of ld. CIT(A)/NFAC dated 19/07/2024 vide Din and Order No: ITBA/NFAC/S/250/2024-25 passed u/s. 250 of the income Tax Act, 1961 (in short “the act”) for the AY 2018-19.
The assessee has raised the following Grounds of appeal:-
Afzal Pasha, Bengaluru Page 3 of 11 3. As noted by the Registry, there is a delay of 130 days in filing the appeal before this Tribunal. Before us, the ld. A.R. of the assessee drew our attention to an affidavit dated 6.2.2025 stating therein the cause for delay, which are reproduced below for ease of reference and convenience:
Afzal Pasha, Bengaluru Page 7 of 11 3.1 On going through the above affidavit, we take note of the fact that due to the health issues, the assessee could not file the appeal within the prescribed period. The assessee has also produced the medical certificate dated 27.1.2025 in support of his claim.
3.2 Perused the record and having heard ld. Counsel for the assessee as well as the ld. D.R., it is perceived that the explanation offered in the affidavit dated02/02/2025 is plausible and sufficient cause being shown by the assessee, which prevented him from filing the appeal within the prescribed period and accordingly, we inclined to condone the delay and admit the appeal for adjudication on merits.
Now the brief facts of the case are that the assessee is into the business of wholesale and retain trade in waste, scrap and materials for recycling. The assessee filed his return of income for the assessment year 2018-19 on 31.10.2018 by declaring total income of Rs.62,39,520/-. Subsequently, the case of the assessee was selected for limited scrutiny assessment under CASS on the issue of “unsecured loans”. Accordingly, notices u/s 143(2) & 142(1) of the Act were issued from time to time. During the course of assessment proceedings, the AO as per the unsecured loan details submitted in serial no.31(a) of Form 3CD i.e. Tax Audit Report noticed that the assessee had taken substantial unsecured loans from different persons who have not filed their returns of income. During the year under consideration, the assessee has taken total unsecured loans of Rs.2,41,50,000/-. Out of this, an amount of Rs.39,99,941/- was taken from Mr. Ajaz Baig and an amount of Rs.27,40,000/- has been shown as paid back and is shown as closing balance of Rs.12,59,941/-. The assessee had submitted the details in respect of all unsecured loans taken by him during the year along with copies of PAN & Aadhar cards of the lenders. However, the assessee could not submit the ITR copies of the lenders to prove the creditworthiness Afzal Pasha, Bengaluru Page 8 of 11 of the lender parties. Further, the AO also noticed from the audit report that these unsecured loans have been accepted other than mode of DD/Cheques or ECS. Mr. Ajaz Baig, however, submitted the documentary evidences to prove the identity, creditworthiness of the lender and genuineness of the transactions. However, in respect of balance amount of Rs.2,28,90,059/- of unsecured loans, the assessee merely submitted the PAN & Aadhar copy of the lenders only and submitted that other parties are small managing their business from meagre capital. The AO also noticed that all other parties hail from unorganized sector and they do not have also GST registration and income tax return and thus, the AO held that as the assessee could not discharge his onus to prove that the unsecured loans are genuine transactions and therefore, the amount of Rs.2,28,90,059/- was treated as unexplained cash credit u/s 68 of the Act r.w.s. 1115BEE of the Act. The AO completed the assessment proceedings u/s 143(3) r.w.s. 144B of the Act on a total assessed income of Rs.2,90,69,580/-
Aggrieved by the order of AO passed u/s 143(3) of the Act dated 4.5.2021, the assessee preferred an appeal before the ld. CIT(A)/NFAC.
The ld. CIT(A)/NFAC dismissed the appeal of the assessee by holding that assessee has failed to satisfactorily explain the nature and source of impugned credits and the same constitute undisclosed and unexplained income of the assessee from undisclosed sources and accordingly addition of Rs.2,28,90,059/- as made by the AO was confirmed.
Again, aggrieved by the order of ld. CIT(A)/NFAC, the assessee has filed the present appeal before this Tribunal.
Afzal Pasha, Bengaluru Page 9 of 11 8. Before us, the ld. A.R. of the assessee vehemently submitted that the assessee had produced PAN card as well as Aadhar card of the lenders land thus proved the identity of the loan creditors was established beyond doubt. Further, the ld. A.R. of the assessee submitted that the loan was taken for the purpose of the business and also the books of accounts were audited by the Chartered Accountant. Further, with regard to Mr. Ajaz Baig, the assessee had established the identity, creditworthiness as well as genuineness of the transactions as observed by the AO. However, in case of the balance loan creditors, the AO should have given opportunity to cross-examining the loan creditors and should have given opportunity to produce the documents to substantiate the claim of the assessee. The ld. A.R. of the assessee prayed that one more opportunity may be granted before the AO to substantiate his claim of loan creditors.
The ld. D.R. on the other hand supported the orders of the authorities below and vehemently submitted that in respect of balance amount of Rs.2,28,90,059/- of unsecured loans, the assessee could not prove the creditworthiness of the lenders by producing the I. Tax returns & GST returns along with the financials and genuineness of the transactions and accordingly, both the authorities below have rightly added the same u/s 68 of the Act as unexplained cash credits.
We have heard the rival submissions and perused the materials available on record. It is an undisputed fact that the case was selected for limited scrutiny under CASS to examine “unsecured loans”. It is also an undisputed fact that during the course of assessment proceedings, the assessee had submitted the details in respect of all unsecured loans taken by him during the year along with copies of PAN & Aadhar cards. Therefore, the identity of the loan Afzal Pasha, Bengaluru Page 10 of 11 creditors were established by the assessee. We also take note of the fact that all these unsecured loans were duly recorded in the books of accounts of the assessee and duly audited by the CA who had also reported the same in his Audit Report. The AO had also not rejected the books of accounts, however in the absence of creditworthiness of the lenders, added the same as unexplained cash credit u/s 68 of the Act. We are of the considered opinion that the prima facie the AO instead of imagining that the loan creditors having below taxable income could hardly save and lend out, should have given opportunity to the assessee to cross examine the loan creditors. Once the primary details in respect of loan creditors were submitted by the assessee, the onus shift upon the AO to disprove that the claim of the assessee is not correct. Undisputedly, the AO in his assessment order satisfied with the identity, creditworthiness as well as genuineness of the transactions in respect of loan creditors Mr. Ajaz Baig. In respect of balance creditors, the assessee had submitted the PAN & Aadhar card copies of the lenders and submitted that all other parties are small and managing their business from meagre capital. The AO instead of straightway disbelieving the contention of the assessee should have called for information & evidences from the lenders directly by issuing notice u/s 133(6) of the Act to them. The AO has enough power to call for those loan creditors along with documents and satisfy himself about the creditworthiness and genuineness of the transactions instead of outrightly rejecting the claim of the assessee that too without any adverse material on record. This being so, in the interest of justice and fair play and as requested by the ld. A.R. of the assessee, we deem it fit and proper to remit this limited issue to the file of AO for fresh examination in accordance with law. Needless to say, a reasonable opportunity of being heard must be granted to the assessee. The assessee is also directed to cooperate with the proceedings and produce all the relevant
In the result, appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 9th Feb, 2026