Top Stories Insufficient Evidence to Prove Loan Creditworthiness: ITAT remands Unexplained Cash Deposits matter for Reconsideration [Read Order] Considering the lack of sufficient evidence to establish the creditworthiness of certain loan creditors, the ITAT remanded the matter for reconsideration. By Kavi Priya – On January 20, 2025 7:43 pm – 2 mins read The Chennai Bench of the Income Tax Appellate Tribunal ( ITAT ) remanded the matter concerning unexplained cash deposits for reconsideration observing that the assessee failed to provide sufficient evidence to establish the creditworthiness of certain loan creditors. Karunakaran Leela, the assessee filed the appeal challenging the addition made by the AO and partially upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

The case was related to unsecured loans totaling Rs. 120 lakhs claimed by the assessee from 17 creditors which were added to her income by the AO due to doubts regarding the creditors’ creditworthiness. Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here During the assessment proceedings, the AO issued notices under Section 133(6) of the Income Tax Act, 1961, to five creditors, of which only three responded. These creditors showed petty income in their Income Tax Returns (ITRs) compared to the loans advanced and had significant cash deposits on the same dates as the loans were granted. Based on these discrepancies, the AO concluded that the creditors lacked the creditworthiness to justify the loans and added the entire Rs. 120 lakhs under Section 68 of the Income Tax Act, 1961. On appeal, the CIT(A) partially allowed the claim of the assessee, deleting Rs. 73.50 lakhs as it was determined to be an outstanding loan brought forward from a prior year. The CIT(A) also accepted the creditworthiness of four creditors totaling Rs. 10 lakhs but upheld the addition of Rs. 36.50 lakhs related to 12 creditors citing insufficient evidence of their creditworthiness.

The assessee approached ITAT arguing that the transactions were conducted through banking channels arguing that AO’s inquiry into the “source of source” of funds was invalid. The two-member bench comprising Manoj Kumar Aggarwal ( Accountant Member ) and Manu Kumar Giri ( Judicial Member ) observed that the assessee failed to provide adequate evidence, including ITRs of the creditors or sufficient documentation to establish their financial capacity. Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here The tribunal observed that the mode of the transaction (banking channels) did not exempt the assessee from proving the creditworthiness of the creditors as required under Section 68 of the Income Tax Act.

The tribunal remanded the matter back to the AO directing a fresh consideration of the issue with a specific opportunity provided to the assessee to substantiate the creditworthiness of the creditors. The appeal was allowed for statistical purposes