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[ITAT-Delhi] Addition Under S. 68 of the Income-tax Act Was Deleted as the Assessing Officer Found No Incriminating Material


The Hon’ble Income Tax Appellate Tribunal – Delhi (‘ITAT’) ACIT, Central Circle – 19 v. KRBL Foods Ltd[i]., upheld the Commissioner of Income-tax (Appeals) (‘CIT (A)’) decision regarding deletion of the addition made under s. 68 of the Income-tax Act, 1961 (‘ITA’) as no incriminating material was found during the search and the transaction was proved through documentary evidence.  

Brief Facts

  • Search and seizure were conducted under s. 132 of the ITA on KRBL Foods Ltd (‘Assessee’). Subsequently, proceedings were initiated against the Assessee. During the assessment proceeding, the assessing officer (‘AO’) found that the Assessee was engaged in various businesses related to contractors, builders, etc., and received an unsecured loan amounting to Rs. 10 crores from an entity. Consequently, the AO sought the details of the loan from the Assessee to establish the identity, creditworthiness of the creditor, and genuineness of the transaction.

  • In response, the Assessee submitted that the loan was obtained for business purposes and through a banking channel and interest was paid on such loan, against which the tax was duly deducted.

  • Further, the AO alleged that the Assessee was engaged in accommodation entries through bogus purchase bills from certain firms and the funds received by way of unsecured loans were rotating between the various entities and held that the Assessee failed to establish the genuineness of the unsecured loans and the creditworthiness of the creditors as out of 12 creditors, only four were found by the AO. As a result, AO treated an unsecured loan of Rs. 10 crores as unexplained cash credit under s. 68 of the ITA and added back the amount to the income of the Assessee and disallowed the interest paid on such loan.

  • The Assessee appealed before the CIT (A), wherein the appeal was decided in favour of the Assessee and the addition made under s. 68 of the ITA was deleted and interest was allowed. It was observed that once the Assessee proves the creditworthiness and genuineness of the transaction, the loan cannot be deemed as non-genuine.

  • Being aggrieved by the same, the AO appealed before ITAT.

Findings of the ITAT

The ITAT upheld the observations of CIT (A) regarding the deletion of the additions made under s. 68 of the ITA, observing that the Assessee had successfully established the genuineness of the unsecured loan transactions and observed as follows:

  • The ITAT relied on the Hon’ble Supreme Court’s case in the case of PCIT v. Abhisar Buildwell (P.) Ltd. & Ors[ii] and Hon’ble Delhi High Court in the case of CIT v. Kabul Chawla[iii] and considered the evidentiary value of the documents submitted by the Assessee to establish the genuineness of the unsecured loan transaction i.e., confirmation from the creditor, the bank statements, audited financial statements, income tax return copies, and noted that the transaction was made through banking channel and opined that the Assessee had provided sufficient evidence thus, it cannot be treated as unexplained cash credit under s. 68 of the ITA.

  • The ITAT observed, that the AO failed to provide any contradictory evidence to establish that the unsecured loan advances were not genuine.

  • The Hon’ble ITAT observed that findings of the AO on the basis of the enquiry conducted could not find some of the creditors do not conclusively prove that the creditors did not exist, and the transaction was not genuine. Thus, the credibility of the party from whom the loan was taken was established.

  • Hence, the ITAT concluded that CIT (A) rightly deleted the addition under s. 68 of the ITA.

Analysis and Conclusion

Upon careful analysis, the decision serves as a significant precedent, shedding light on the interpretation of s. 68 of the ITA and provides that addition under s. 68 of the ITA cannot be made when the Assessee can furnish various documentary evidence such as income tax return copies of the creditors, bank statements of the creditors, audited financial statements of the creditor etc. and establish the identify, creditworthiness, and genuineness of transactions.

The ruling reaffirms that the burden of proof rests upon the tax authorities. The claims of unexplained cash credit cannot be sustained merely on the basis of the allegations against the creditors, the loan transaction cannot be disregarded, and no addition can be made under s. 68 of the ITA in the hands of the recipient of the loan.

End Notes

[i] 2023 SCC OnLine ITAT 415.

[ii] (2023) 149 399 (SC).

[iii] 380 ITR 573.

Authored by Purvi Garg, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.


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