Short Overview: Where assessee had proved identity, creditworthiness of the lender and genuineness of transaction, no addition of loan amount could be made under section 68 merely relying on the statement of an alleged entry operator especially in view of the fact that no opportunity of cross-examination was afforded to assessee.

In the course of search action conducted by DIT (Inc.) in case of Pride Group, Pune one ‘J’ had admitted that he was involved in giving accommodation entries in the form of loans and advances and various companies were incorporated by his employees at different places and M/s. G was one such group companies which assessee had availed loan of Rs. 3 crores during the year. AO treated the said amount as unexplained credit under section 68 in assessee’s hands.

 It is held that   merely placing reliance on statement recorded from third and implicating assessee thereon by looking at the transaction with jaundiced eyes did not get well in the eyes of law. Assessee had borrowed loans from M/s. G in earlier years also and said loans were accepted as genuine by AO interest paid on such loans was also allowed as deduction in earlier years. During the year assessee had paid total interest of Rs. 2 crores to M/s. G which admittedly included interest of opening balance of loans. When opening balance had been accepted as genuine. AO could not be allowed to take a divergent stand as regards loans received from the very same party on same terms and conditions during the year under consideration. Also, no deficiencies whatsoever were found in documentary evidences submitted by assessee which included copy of PAN, ITR acknowledgement, audited financial statements, computation of income, confirmation from lender, bank statements evidencing the immediate source of credit of lender, etc. Thus, assessee had discharged onus to prove identity, creditworthiness of the lender and genuineness of transaction and, therefore, addition made under section 68 was not justified especially in view of the fact that no opportunity of cross-examination of Mr. ‘J’ was afforded to assessee.

Decision: In assessee’s favour.