ITAT Ahmedabad rejects tax department appeals on Rs 12.5 crore of repaid loans

The Income Tax Appellate Tribunal (ITAT), Ahmedabad, has dismissed two appeals by the Income Tax Department against a Hindu Undivided Family (HUF) that had borrowed Rs 12.5 crore through banking channels. In an order pronounced on 12 October 2026, the tribunal upheld the deletion of additions of about Rs 11.05 crore and Rs 1.5 crore to the family's income for assessment years 2018-19 and 2019-20.

What Happened

According to the order, the HUF, which runs a finance business, took unsecured loans of Rs 11 crore in 2017-18 and Rs 1.5 crore in 2018-19 from a company. Acting on information from a search operation in another group's case, the Assessing Officer treated the loans as unexplained cash credit under section 68 of the Income Tax Act, 1961, and added them to the family's income. Section 68 lets the tax officer tax money credited in the books when its source is not satisfactorily explained.

The department had alleged that the lender was a paper company providing accommodation entries, per the grounds of appeal. The Commissioner of Income Tax (Appeals) deleted the additions, finding that they rested on suspicion and borrowed information without independent enquiry.

Before the tribunal, the family showed ledger accounts and co-operative bank statements. These showed the loans were received and the entire Rs 12.5 crore was repaid through banking channels between 17 June 2019 and 20 November 2019. The tribunal held that repayment of a loan is a good indicator that it is genuine, and that the suspicion arising from the search was not founded on facts that could create a valid doubt about these loans. It also rejected the department's plea that the appeal authority should have called for a remand report, noting that no new evidence had been filed at that stage.

What It Means

For taxpayers who borrow money, the order shows the kind of records the tribunal relied on: loans received and repaid through banks, recorded in the books and disclosed in audited accounts. In this tribunal's view, information from a search on a third party, without material specific to the taxpayer, was not enough to treat the loans as income.

Source: ITAT order