After the taxpayer presented Income Tax Returns ( ITRs ) and bank statements to demonstrate the authenticity of the unsecured loan, the Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) removed the addition under Section 68 of the Income Tax Act, 1961. The case involved a private limited company operating in the real estate development sector, which had accepted unsecured loans from various parties. The Assessing Officer ( AO ) raised concerns regarding the legitimacy of these loans, alleging that the lending parties were paper/shell companies controlled by an entry provider named Mukesh Banka.

This allegation stemmed from search proceedings conducted within the Mukesh Banka group, where certain evidence was unearthed, including statements recorded under Section 132(4) of the Income Tax Act. The AO specifically highlighted a loan of Rs. 6,74,81,741/- from six companies allegedly controlled by Mukesh Banka. Despite the submission of detailed documentation by the taxpayer, including ledgers, confirmations, ITRs, bank statements, and annual reports, the AO proposed to treat these unsecured loans as unexplained cash credits under Section 68 of the Act.

During the proceedings, the taxpayer submitted  that the allegations were solely based on material found during the search at the Mukesh Banka group and lacked proper opportunity for rebuttal or cross-examination. Moreover, discrepancies were pointed out, such as the absence of significant cash withdrawals from the alleged lending parties’ bank accounts. On behalf of the revenue, Mr. S.N Soparkar contended that the lending companies were suspiciously formed on the same day, at the same address, with identical email IDs. He also raised concerns about uniform affidavits and the absence of bank statements from the lending parties. However, he asserted that sufficient collateral evidence existed to support the AO’s decision, negating the need for cross-examination. In its ruling, the ITAT acknowledged the taxpayer’s comprehensive submission of supporting documents but criticized the AO’s failure to adequately consider them.

The tribunal emphasized the lack of justification for disregarding the taxpayer’s evidence and relying solely on statements and materials obtained during the search without providing an opportunity for rebuttal. The tribunal  also observed that the taxpayer provided all the required documents to prove the authenticity of the loan, including ledgers, confirmations, ITRs, bank statements, and annual reports. However, the AO did not identify any issues with these documents and made the decision to classify the loan as unexplained cash credit.

This decision was based solely on statements and material obtained during a search at third-party premises, without giving the taxpayer a chance to respond or cross-examine. The two-member bench, comprising Siddhartha Nautiyal (Judicial member) and Waseem Ahmed (Accountant member), upheld the findings of the CIT (A) and directed the AO to delete the addition. The ITAT condemned the Revenue’s decision to treat the interest on the alleged loans as genuine while deeming the loans themselves as bogus, ultimately dismissing the revenue’s appeal.