Unsecured Loan Treated as Bogus Despite Banking Channels: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the addition of ₹1.55 crore as unexplained cash credit, holding that mere routing of funds through banking channels does not establish the genuineness of a transaction when surrounding circumstances raise serious doubts. The bench of Sandeep Singh Karhail (Judicial Member) and Om Prakash Kant (Accountant Member) has observed that while the identity of the lender was not disputed, the financial capacity and genuineness of the transaction remained unsubstantiated. It held that the presence of significant cash deposits in the lender’s bank account prior to issuance of cheques creates a strong presumption against the transaction, which the assessee failed to rebut with credible evidence. The decision came in the case of Kailas Punavasi Yadav vs Income Tax Officer, where the Tribunal dismissed appeals for Assessment Years 2013-14 and 2014-15, affirming the findings of both the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) . The assessee, engaged in real estate development through a proprietorship concern, had received unsecured loans aggregating to over ₹4.51 crore during the relevant assessment year. Out of this, a sum of ₹1.55 crore received from M/s Raj Associates came under scrutiny. The AO questioned the genuineness of this transaction after observing substantial cash deposits in the lender’s bank account immediately prior to issuance of cheques to the assessee. Despite being given multiple opportunities, the assessee failed to satisfactorily establish the creditworthiness of the lender and the genuineness of the transaction, both of which are essential conditions under Section 68. The AO noted that M/s Raj Associates had minimal capital base, negligible business activity during the year, and had filed a nil income return. Further discrepancies in its financial statements and absence of meaningful business transactions raised serious doubts about its capacity to extend such a large loan. Rejecting the assessee’s explanation that the loans were received through account payee cheques, the AO held that banking channels alone do not validate a transaction if the underlying source is unexplained. Consequently, the amount was treated as the assessee’s own unaccounted money routed through accommodation entries and added to income under Section 68. The CIT(A) upheld the addition, emphasizing that mere submission of documents such as bank statements, ITR copies, and confirmations is insufficient where surrounding facts indicate a lack of genuineness. The appellate authority observed that cash deposits in the lender’s account immediately preceding loan disbursement clearly undermined the credibility of the transaction. The assessee argued that it had discharged its onus by furnishing documentary evidence and that the requirement to prove “source of source” was introduced only from April 1, 2023, and hence not applicable to the relevant years. However, the Tribunal rejected this contention, clarifying that even prior to the amendment, the assessee was required to prove the creditworthiness of the lender, especially where suspicious cash deposits were evident. The Tribunal reiterated that the absence of a statutory requirement to prove “source of source” for earlier years does not dilute the primary burden on the assessee to establish the lender’s capacity. In cases where the facts indicate accommodation entries or circular routing of funds, the onus becomes heavier. The ITAT further dismissed the assessee’s arguments on violation of natural justice, observing that multiple opportunities were granted during assessment and appellate proceedings. It also rejected reliance on judicial precedents cited by the assessee, noting that those cases were based on different factual matrices where the source of funds had been satisfactorily explained. Applying the same reasoning, the Tribunal dismissed the appeal for Assessment Year 2014-15 as well, since the facts were identical. Case Details Case Title: Kailas Punavasi Yadav Versus Income Tax Officer, Ward - 42(1)(3) Citation: JURISHOUR-788-ITA-2026(MUM) Case No.: ITA No. 5664/Mum./2025 Date: 15/04/2026 Counsel For Appellant: Dinkle Hariya, Adv. Counsel For Respondent: Ritesh Misra, CIT-DR Click Here To Read Order Read More: Supreme Court Steps In to Secure Decades-Old Workmen Dues in Jaipur Udyog Case, Flags Irregular Asset Sales and Invokes Article 142 Powers

Unsecured Loan Treated as Bogus Despite Banking Channels: ITAT

Membership Required

Latest articles

CBI Books GST Superintendent in Fresh FIR Over Rs. 20.40 Lakh Disproportionate Assets Case

No Estoppel in Tax Classification: Madras High Court Allows Reclassification of Processed Tobacco as ‘Unmanufactured Tobacco’

CBI Officials Convicted for Illegal Arrest of IRS Officer; Court Says Action Was Malafide and Beyond Official Duty

GST Confiscation Notice Invalid if ‘Intent to Evade Tax’ Not Formed Within 6 Days: Gujarat High Court

More like this

CBI Books GST Superintendent in Fresh FIR Over Rs. 20.40 Lakh Disproportionate Assets Case

No Estoppel in Tax Classification: Madras High Court Allows Reclassification of Processed Tobacco as ‘Unmanufactured Tobacco’

CBI Officials Convicted for Illegal Arrest of IRS Officer; Court Says Action Was Malafide and Beyond Official Duty

About us

Company

Categories