Turnover of a Company Alone Cannot be Considered as Source of Loan Advanced to Assessee, Secondary Onus Needs to be Proved: ITAT Deletes Income Tax Addition [Read Order]

The Chennai Bench of Income Tax Appellate Tribunal (ITAT) held that the turnover alone could not be considered as source of loan as advanced to the assessee, thus directed the Assessing Officer (AO) to delete the impugned addition.

The assessee M/s. Sasi Enterprises is stated to be a partnership firm. The assessee admitted loan of Rs.16.47 lakhs from Mr. Ramachandran. The assessee filed address of the lender along with confirmation letter from M/s H.M.C. Fabrics Private Ltd.

During the scruntiny assessment the AO observed that the perusal of Bank account held by M/s H.M.C. Fabrics Pvt. Ltd. revealed that there was cash deposit of Rs.7.75 Lakhs and Rs.11.25 Lakhs.

The AO held that it was not possible for a company with a turnover of Rs.3.95 Lacs to advance huge loan of Rs.16.47 Lakhs, and thus the assessee’s own undisclosed cash was brought in the guise of loan from Mr. Ramachandran / M/s H.M.C. Fabrics Pvt. Ltd. and the same was not genuine and hence, added to the income of the assessee.

Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].

The first appeallate tribunal stated that the assessee did not discharge the duties to prove the capacity of the creditor and genuineness of the transaction and confirmed the addition of Rs.16.47 Lakhs under Section 68 of the Income Tax Act.

The assessee further filed an appeal before the ITAT and made contended that during the course of assessment proceedings, the assessee has filed address of the lender along with confirmation letter from M/s H.M.C. Fabrics Private Ltd. in support of the transaction. Thus, discharged the onus to prove the identity of the lender, their respective creditworthiness and the genuineness of the transaction.

The bench comprising of V. Durga Rao, Judicial Member and Manoj Kumar Aggarwal, Accountant Member, observed that the assessee had discharged its primary onus of fulfilling the three ingredients of Section 68 of the Income Tax Act. The lender, in sworn statement, admitted the fact of granting of loan and thus, the assessee stood discharged. The onus was now on revenue.

Thus the Tribunal held that the turnover alone could not be considered as source of loan as advanced to the assessee and hence directed the  AO to delete the impugned addition of Rs.16.47 Lakhs.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates