Facts of the Case

The assessee, Sabbirbhai Abdeali Gangardiwala, was assessed for Assessment Year 2019-20. During the assessment proceedings, the Assessing Officer made an addition of ₹39,00,000 under Section 68 of the Income-tax Act treating unsecured loans as unexplained cash credits. The loans comprised ₹25,00,000 from Mr. Aziz Husenibhai Adenwala, ₹6,00,000 from Mr. Khuzama Fakhruddin Gangardiwala, both NRIs, and ₹10,00,000 from Mrs. Yasmin Firozbhai Lanewala, a family member.

The assessee furnished confirmation letters on stamp paper, PAN details, partial bank statements evidencing transfer of funds, his own bank statements showing receipt through banking channels, and documents establishing NRI status and overseas business of the lenders. The CIT(A), NFAC, however, confirmed the addition primarily on the ground that there was no written loan agreement, no interest charged, and no repayment even after five years. Aggrieved, the assessee preferred an appeal before the Tribunal.

Issues Involved

Whether unsecured loans received from NRIs and a family member could be treated as unexplained under Section 68 merely due to absence of written loan agreements, interest component or immediate repayment, when identity, creditworthiness and genuineness were otherwise established through documentary evidence.

Petitioner’s Arguments

The assessee contended that the onus under Section 68 was duly discharged by furnishing confirmations, banking records, NRI status documents and evidence of overseas business of lenders. It was argued that friendly and family loans are often interest-free and based on oral understanding, and absence of a written agreement or delayed repayment does not make such loans ingenuine. It was further submitted that all transactions were routed through banking channels and no infirmity was found in the documents filed.

Respondent’s Arguments

No appearance was made on behalf of the assessee at the time of hearing. The Revenue relied on the order of the CIT(A), contending that absence of loan agreement, interest and repayment indicated lack of genuineness of the loans.

Court Order / Findings

The ITAT Ahmedabad examined the material on record and observed that the assessee had furnished confirmations from all lenders, bank statements evidencing transfer of funds through banking channels, and documents substantiating NRI status and overseas business activities of two lenders. The Tribunal noted that the CIT(A) did not dispute the identity of lenders, the fact of transactions through banking channels, or the source of funds in the hands of NRI lenders.

The Tribunal held that absence of a written loan agreement is not fatal, as loans can be advanced on oral terms, particularly in case of friendly or family loans. It was further held that interest-free loans and delayed repayment are not unusual and cannot, by themselves, render a transaction ingenuine. The Tribunal concluded that the reasons adopted by the CIT(A) were not essential ingredients for invoking Section 68 and that the assessee had sufficiently discharged the onus cast upon him. Accordingly, the addition of ₹39,00,000 was directed to be deleted.

Important Clarification

The Tribunal clarified that for the purpose of Section 68, once identity of lenders, creditworthiness and genuineness of transactions are established through confirmations and banking evidence, unsecured loans cannot be treated as unexplained merely because they are interest-free, undocumented by a formal agreement, or outstanding for a long period.

Final Outcome

The appeal filed by the assessee was allowed in full. The addition of ₹39,00,000 made under Section 68 of the Income-tax Act on account of unsecured loans was deleted.

Link to download order https://www.mytaxexpert.co.in/uploads/1769063384_SABBIRBHAIABDEALIGANGARDIWALADAHODVS.ITOWARD01DAHODDAHOD.pdf

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