Unexplained Credit under Section 68 — ITAT Ahmedabad Deletes Addition Where Loan was Genuine, Interest-bearing, and Repaid

Case:Maruti Multichem Pvt. Ltd. vs. The DCIT, Circle-2(1)(1), Ahmedabad

[ITA No. 1644/Ahd/2025 — Order dated 7 November 2025]

Core Issue:-Whether the loan received through banking channels from a known corporate entity (M/s Dishman Pharmaceuticals & Chemicals Ltd.), on which interest was paid and TDS deducted, could be treated as unexplained cash credit under section 68 and taxed at 60% under section 115BBE, merely because the reassessment was reopened on allegations of bogus transactions.

Factual Background

            •          Assessee: Maruti Multichem Pvt. Ltd., a private limited company.

            •          Assessment Year: 2017–18.

            •          Return filed: ₹1,79,06,740 on 16.10.2017.

            •          Reassessment: Initiated on allegation that the assessee had received bogus loans/advances from

M/s. Dishman Pharmaceuticals & Chemicals Ltd. (DPCL).

            •          Amount involved: ₹50,00,000.

            •          Reassessment outcome: The AO treated ₹50 lakh as unexplained cash credit u/s 68, taxed it under section 115BBE, and raised demand.

Assessee’s Contentions before CIT(A)

            1.         Genuine loan transaction:

            •          Loan received through banking channels on 11.08.2016 (₹13 lakh) and 12.08.2016 (₹37 lakh).

            •          Interest paid ₹2,86,348 in FY 2016-17 and ₹4,50,000 in FY 2017-18.

            •          TDS deducted and deposited (₹28,635 and ₹45,000 respectively).

            •          Loan repaid in full on 11.01.2019 through banking channels.

            2.         Documentary evidence furnished:

            •          Confirmation from lender (DPCL).

            •          Assessee’s and lender’s bank statements.

            •          Balance sheets evidencing loan and repayment entries.

            3.         No adverse material by Revenue:

            •          AO did not issue summons or notice u/s 133(6) to DPCL.

            •          No cash trail or circular transaction found.

            •          Thus, the identity, creditworthiness, and genuineness stood fully established.

            4.         Judicial support:

            •          CIT v. Ayachi Chandrashekhar Narsangji (42 taxmann.com 251, Guj HC)

            •          PCIT v. Ambe Tradecorp (P.) Ltd. (145 taxmann.com 27, Guj HC)

            •          In both, repayment of loan and accepted interest payments were held sufficient to negate additions u/s 68.

Despite these submissions, the CIT(A) upheld the addition without addressing these materials or judicial precedents.

Assessee’s Argument before ITAT

            •          The AO and CIT(A) erred in ignoring undisputed facts:

            •          Loan through banks,

            •          Interest with TDS duly paid and accepted by the department, and

            •          Repayment in subsequent year.

            •          Having discharged the primary onus under section 68, the burden shifted to the AO to disprove the evidence, which was not done.

            •          Hence, the addition under sections 68 and 115BBE was unsustainable.

Revenue’s Argument

The Departmental Representative supported the lower authorities’ orders and contended that the loan from DPCL was part of a wider investigation into alleged bogus loans, justifying the addition.

Tribunal’s Findings

            1.         Undisputed banking transactions:

The ledger and bank statements (pages 101–108 of paper book) showed:

            •          Loans of ₹13 lakh and ₹37 lakh received via banking channels.

            •          Interest payments made with TDS.

            •          Full repayment of ₹50 lakh through bank on 11.01.2019.

            •          Contra confirmation from DPCL available on record.

            2.         Genuineness established:

            •          No evidence of cash circulation or bogus entries.

            •          All transactions recorded in audited accounts of both parties.

            •          AO did not conduct independent verification or enquiry u/s 133(6).

            3.         Binding Jurisdictional Precedents:

            •          In CIT v. Ayachi Chandrashekhar Narsangji (Guj HC), it was held that where a loan is repaid and accepted by the Department, addition u/s 68 is unsustainable.

            •          PCIT v. Ambe Tradecorp (P.) Ltd. reiterated the same principle.

The ITAT found the present case on identical footing, since repayment and interest were duly accepted and no contrary evidence was produced by Revenue.

            4.         Onus discharged:

The assessee had proved identity, creditworthiness, and genuineness—the three essential ingredients under section 68. Once done, the AO was required to rebut with positive evidence, which he failed to do.

            5.         Tax under section 115BBE unjustified:

Since section 68 was not applicable, consequential taxation under section 115BBE (60%) also fails.

Tribunal’s Conclusion

            •          The addition of ₹50,00,000 under section 68 and taxation under section 115BBE were unsustainable in law.

            •          The CIT(A)’s order was reversed.

            •          Assessee’s appeal allowed.

“Respectfully following the binding Gujarat High Court decisions, the addition made by the lower authorities is not sustainable. The same is deleted.”