ITAT Sends Back Section 68 Loan Addition for Fresh Verification After Assessee Claims Full Repayment
Mukhi Corporation, a real estate developer, filed its return for AY 2017-18 declaring Rs. 25.43 lakh income. During scrutiny, the assessee failed to comply with repeated notices under sections 143(2) and 142(1). The Assessing Officer completed the assessment under section 144, treating a Rs. 10 lakh unsecured loan from one Shri Shailesh Kalidas as unexplained under section 68 on the ground that no evidence of identity, creditworthiness, or genuineness was produced. Since no books, cost details, or WIP records were furnished, the AO also rejected the books under section 145(3) and estimated 10% net profit on turnover, resulting in an addition of Rs. 17.62 lakh.
Appeal to CIT(A): In the appeal, the CIT(A) found that the assessee still failed to substantiate the loan except for a self-generated ledger and therefore upheld the Rs. 10 lakh addition. However, the assessee produced complete project-wise details regarding WIP, cost allocation, audited accounts, and percentage-completion workings, leading the CIT(A) to delete the 10% profit estimation as arbitrary. The ground alleging breach of natural justice was rejected, noting multiple opportunities given by the AO. The assessee then appealed to the Tribunal.
Issue Before Tribunal: Whether the Rs. 10,00,000 unsecured loan, treated as unexplained u/s. 68, should be sustained when the assessee claims to have repaid the amount through banking channels, and this fact was never verified by the lower authorities.
Tribunal Decided: The Tribunal noted that the only point requiring adjudication was the addition of Rs. 10 lakh under section 68. The assessee argued that the entire loan had been repaid on 19.05.2020 and relied on several Gujarat High Court rulings, such as Ayachi Chandrashekhar Narsangji and Ambe Tradecorp Pvt. Ltd., where repayment of a loan within a reasonable period was held to be a crucial factor negating a section 68 addition. These precedents emphasise that once repayment is accepted by the Department, the foundational presumption of an unexplained cash credit does not survive.
Since neither the Assessing Officer nor the CIT(A) had examined whether repayment actually took place, the Tribunal held that the matter required a factual re-look. The issue was therefore remanded to the AO for de novo verification, limited strictly to confirming repayment of the loan through confirmations and supporting evidence. If repayment is found to be genuine, the addition under section 68 must be deleted in line with binding judicial precedents. The appeal was allowed for statistical purposes.
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