ITAT Ahmedabad Holds Suspicion Cannot Replace Evidence, Strikes Down ₹38 Lakh & ₹10.5 Lakh Additions

On 18 June, the Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) held that additions cannot be sustained merely on suspicion when a taxpayer furnishes complete documentary evidence.

Vice President Dr. B.R.R. Kumar and Judicial Member Suchitra Kamble deleted additions of Rs. 38 lakh and Rs. 10.5 lakh made by the Income Tax Department against Shreenathji Extrusion. The Bench held:

“There is no cash outflow of Rs. 10,50,000/- from the assessee to M/s. Balkrishana Metal, much less an unexplained investment within the meaning of Section 69 of the Act. The evidence that Rs.10,50,000/- inward receipt through RTGS which is in the custody of the Department itself proves that the assessee paid an amount of Rs.10,50,000/- to M/s. Balkrishna Metal”

The dispute arose after the Department treated unsecured loans of Rs. 38 lakh received by Shreenathji Extrusion from employees and family members as unexplained income under suspicion that the lenders had deposited cash into their accounts prior to transferring funds and lacked sufficient income to justify the advances.

The company, however, submitted complete documentary evidence, including loan confirmations, PAN and Aadhaar details, income tax returns of lenders, bank statements, ledger accounts, and proof of receipt through banking channels. It also showed that tax was deducted at source on interest payments and that the loans were subsequently repaid through account-payee cheques.

The Tribunal held that once identity, creditworthiness, and genuineness of transactions are established, the burden shifts to the Department to disprove the same. It observed:

“There is no material whatsoever brought on record by the AO to demonstrate that the said 'SHREE NATHA EXTRUSION' is, in fact, the assessee firm 'M/s. Shreenathji Extrusion', or that the entries in the said ledger represent real and actual transactions of the assessee”

The Bench noted that no independent material had been brought on record to establish that the funds represented unaccounted income of the taxpayer, reiterating that suspicion cannot substitute evidence.

On the additional disallowance of Rs. 10.5 lakh, the Department relied on a Tally entry found during a survey at another premises, alleging unexplained cash payment by Shreenathji Extrusion. The Tribunal rejected this finding, observing that the entry referred to “Shree Natha Extrusion” and not the taxpayer entity.

It further relied on bank records and books of account showing that the amount was actually received through RTGS as an advance against goods sold, and not paid in cash. It found no evidence of unexplained investment or cash transaction and deleted both additions.

Accordingly, the ITAT dismissed the Revenue's appeals

For Appellant: Shri Biren Shah, AR

For Respondent: Shri Alpesh Parmar, CIT (DR) and Shri Veerabadram Vislavath, Sr DR