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Facts
The assessee appealed against the CIT(A)'s confirmation of an addition of Rs. 39,00,000/- as unexplained cash credits under section 68 of the Income Tax Act, 1961. The addition pertained to unsecured loans from three lenders. The assessee contended that they had provided confirmations, PAN copies, loan ledgers, and evidence of banking channel transactions, along with NRI status documents for two lenders.
Held
The Tribunal held that the CIT(A) erred in confirming the addition. The Tribunal found that the assessee had discharged its onus by providing confirmations, demonstrating banking channel transactions, and establishing the NRI status of two lenders. The absence of loan agreements, interest components, or immediate repayment was not considered sufficient grounds to doubt the genuineness of the loans.
Key Issues
Whether the CIT(A) was justified in confirming the addition of unsecured loans under Section 68, solely on the grounds of absence of loan agreements, interest, or repayment, despite other documentary evidence provided by the assessee.
Sections Cited
68, 250
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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA
O R D E R The present appeal has been filed by the Assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”) dated 31.05.2025 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2019-20.
The grounds of appeals raised by the assessee are as under:
1. 1. 1. 1. “The Learned C17(A) has erred in law and on facts in confirming the addition of 39,00,000/- as unexplained cash credits under section 68 of the income-tax Act, 1961. The CIT(A) has failed to appreciate that the assessee had submitted confirmations, PAN copies, and loan ledgers from all three lenders, and that the loans were received through banking channels.
The CIT(A) has erred in rejecting the appellant's contention merely due to the absence of lenders’ ITRs and bank statements, which are net solely determinative of creditworthiness. The ITRs, bank statements and/or transaction receipt of the lenders are now being submitted as part of this appeal. The CIT(A) has erred in holding that non-repayment or absence of loan interest invalidates the transaction, ignoring the relationship, facts and natural of informal personal loans. The order passed by CITA) is against the principles of natural justice and is liable to be set aside The appellant craves leave to add, alter, amend or withdraw any ground of appeal at any time before the hearing.”
3. The solitary issue in the present appeal pertains to the addition made to the income of the assessee u/s.68 of the Act on account of unsecured loans amounting to Rs.39 Lakhs, the genuineness of which remained to be established. None appeared on behalf of the assessee. However, on going through the orders of the authorities below, I found that the assessee had a fair case in its favour and, therefore, the Ld.DR was heard and on being satisfied that the Ld. CIT(A) had wrongly confirmed the addition, the matter was treated as heard although ex parte.
4. The amount of Rs.39 Lakhs of unsecured loan added to the income of the assessee u/s.68 of the Act pertained to that taken by the assessee from the following: i. Mr. Aziz Huseni Bhai Adenwala - Rs.25,00,000/- ii. Mrs. Yasmin Firozbhai Lanewala - Rs.10,00,000/- iii. Mr. Khuzama Fakhruddin Gangardiwala - Rs.6,00,000/- The orders of the authorities below reveal that the assessee had submitted the confirmations letters on stamp paper from all the three lenders and had stated Mr. Aziz Huseni Bhai Adenwala and [Sabbirbhai Abdeali Gangardiwala vs. ITO] A.Y. 2019-20 - 3 – Mr. Khuzama Fakhruddin Gangardiwala to have NRI status. Documents substantiating their status were also submitted. The assessee had also submitted partial bank transactions details of the lenders for loan transfer and had also submitted its own bank statement showing receipt of loan amounts through banking channels. The assessee had filed submissions in writing explaining the genuineness of the transaction contending that two NRI lenders had transferred funds to the assessee from their savings and funds which were earned through business carried out outside India. NRI status documents and business license in Dubai and also bank statements were submitted. The amount of loan received from Mrs. Yasmin Firozbhai Lanewala was explained as having been extended by the said lady from her savings, being housewife, accumulated over years and her confirmation on stamp paper was also submitted. The submissions of the assessee to this effect mentioning the documents filed to the Ld. CIT(A) are reproduced at para 2 & 3 of page 5 of the CIT(A) order as under:
“2. Submission: a. Two lenders, Aziz Husenibhai Adenwala and Khuzema Fakhruddin Gangardiwala, are NRIs who reside outside India for more than 180 days annually. As such, their savings and funds are not taxable under Indian law, and their creditworthiness can be validated through the documents provided (Enclosed: NRI Status Documents, Business License in Dubai, Bank Statements), b. Yasmeen Firozbhai Lanewala, a housewife, extended a loan from her savings accumulated over several years. Her confirmation on stamp paper and accompanying documentation establish the genuineness of the transaction (Enclosed: Loan Confirmation and Notary). c. The lenders refusal to share their private ITRs or full bank statements is not indicative of non-creditworthiness. The amounts lent are reasonable, and all transactions were conducted via banking channels, as verified by the appellant's bank records.
Supporting Documents:
[Sabbirbhai Abdeali Gangardiwala vs. ITO] A.Y. 2019-20 - 4 – Confirmation letters on stamp paper from all three lenders. I status documents for Aziz Husenibhai Adenwala and Khuzema Fakhruddin Gangardiwala. Partial bank transaction details of lenders for loan transfers. Appellant's bank statement showing receipt of loan amounts.
The Ld. CIT(A) while confirming the addition does not dispute the fact of above documents having been submitted by the assessee. However, he has held the impugned loans to be not genuine noting that there were no loan agreement executed for the transaction, no interest component relating to this loan transaction and no interest repayment or principal repayment evidence filed by the assessee. He noted the loans to be outstanding even after a gap of five years and no incidental interest seen to be existing with these loan transactions. His findings in the regard are contained at page nos. 8 to 12 of the order as under:
“From perusal of the facts and circumstances of the case, the loan creditors question are as under: Sr. Lender Amount Month of Argument of Appellant borrowing 1 Mr. Aziz Rs.25,00,000/- Oct 2018 NRI who reside Huseni Bhai outside India for Adenwala more than 180 days annually. As such, their savings and funds are not taxable under Indian law, and their creditworthiness can be validated through the documents provided The lenders' refusal to share their private ITRs or full bank statements is not indicative of non- creditworthiness.
[Sabbirbhai Abdeali Gangardiwala vs. ITO] A.Y. 2019-20 - 5 – 2 Mr. Khuzama Rs.6,00,000/- Sept 2018 & --do-- Fakhruddin Feb 2019 Gangardiwala 3 Mrs. Yasmin Rs.10,00,000/- Aug 2018 a housewife, Firozbhi extended a loan from Lanewala her savings accumulated over several years. Her confirmation on stamp paper and accompanying documentation establish the genuineness of the transaction (Enclosed: Loan Confirmation and Notary). The lenders refusal to share their private ITRs or full bank statements is not non-indicative of creditworthiness. Total 3900000 In order to ascertain the genuineness of the loans in consideration, the key fundamental associated with such nature of transaction needs to be evaluated. These are the loan agreements executed for these transactions, the interest component and the interest payment and principal repayment evidence. This appeal has found none of these fundamentals existing to the claimed loan transactions. This is itself evident from the ledger copies as on Nov 2023 provided by appellant. For sake of clarity, these are reproduced hereunder:
It is seen that the loans raised in FY 2018-19 are still outstanding in year 2023. It is also seen that no significant repayment against these loans was made by appellant even after a gap of 05 years. It is also necessary to note that no incidental interest is seen existing with these claimed loan transactions. In consideration of above discussed factors, this appeal is inclined to hold that the very genuineness of the loan transaction is not found proved from the submission of the appellant and the factors discussed above are making this appeal to reject the claim of appellant regarding claiming these as loan transaction. Therefore, this appeal finds no reason to interfere with the action of AO in charging the provision of section 68 of Act over these claimed loans of Rs. 39,00,000/-. Addition is confirmed and grounds raised are dismissed.
6. What is evident from the above is that as far as the assessee is concerned, he has claimed to discharge his onus of proving the genuineness of the unsecured loans by filing documents, such as, the confirmation of the said parties, demonstrating the fact that the transactions took place through banking channel submitting necessary evidence by way of copy of relevant bank statement of the lenders relating to the period when the loan was advanced [Sabbirbhai Abdeali Gangardiwala vs. ITO] A.Y. 2019-20 - 7 – by them and also its own bank statement reflecting receipt of the loans therein, and also filing evidences to the effect that two of the lenders were NRIs and carried on business outside India by filming copy of their business license outside India. The Ld. CIT(A) has found no infirmity in the above documents furnished by the assessee and the only reason for doubting the genuineness of the transaction is that there is no loan agreement entered into between the parties and no interest component involved in the loan as also no repayment of the loan or interest in the period of five years for which the said loans were outstanding.
In my considered understanding, the above reasons for doubting genuineness of the unsecured loan is not correct. As long as the Revenue does not find any infirmity in the confirmation filed by the assessee of the said parties ,does not dispute the fact of the transaction having taken place through banking channels and also the fact established by the assessee that two out of three persons were NRI’s carrying on business outside India from where the loan was sourced by them, the unsecured loans given by the parties cannot be treated as ingenuine merely for the reason that there was no agreement entered into or loans were not repaid even after a lapse of five years .The reasons brought out by the Ld. CIT(A) for doubting the loans, in my considered belief, are not essential ingredients for establishing the genuineness of the loan transaction. A loan agreement in writing is not a necessary component of any loan transaction and loans are given on oral terms also. Similarly, it is not unusual that friendly loans are given without charging any interest. Also the fact that the loans were not repaid even after a [Sabbirbhai Abdeali Gangardiwala vs. ITO] A.Y. 2019-20 - 8 – lapse of five years is not too material a fact or too unusual fact to raise any doubt on the genuineness of the transaction.
In the light of the above, I hold that the assessee has sufficiently discharged its onus of proving the genuineness of the loans received amounting to Rs.39lacs and the basis with the Ld.CIT(A) for holding it as not genuine is incorrect. The addition, therefore, confirmed by him of Rs.39 Lakhs made by the AO u/s.68 of the Act is directed to be deleted.
In the result, the appeal filed by the assessee is allowed.
This Order pronounced on 19/01/2026 Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad; Dated 19/01/2026 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. संबंिधत आयकर आयु� / Concerned CIT 3. 4. आयकर आयु�(अपील) / The CIT(A)- �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER,