The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench has held that the absence of a formal loan agreement or repayment schedule does not justify treating the unsecured loan as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
The assessee, Shri NiteshkumarMaganbhai Patel is an individual engaged in the business of civil construction. The assessee had received an unsecured loan from Sri Salim Hamid Menon. The Assessing Officer (AO) treated the loan as an unexplained cash credit under Section 68 of the Income Tax Act, 1961 and added it to the assessee’s total income.
The assessee filed an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)), who confirmed the addition made by AO.
Aggrieved by this, the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT), Ahmedabad bench against the order of CIT(A) confirming the order of AO.
The assessee, represented by S.N. Soparkar, Parin Shah and Shri Anil R. Shah argued that all necessary details, including Permanent Account Number (PAN), confirmation letters, and bank statements, were provided during the assessment proceedings to establish the identity, genuineness, and creditworthiness of the lender.
The assessee claimed that a portion of the loan amount was mistakenly credited to the wrong party in the ledger.
The revenue, represented by Vijay Kumar Jaiswal and Atul Pandeycontended that the loan from Sri Salim Menon shall be treated as unexplained cash credit on the reasoning that there being no formal loan agreement, cash flow statement of the lender, schedule of repayment and interest and permission of Reserve Bank of India (RBI)/authority to accept money from Non-Resident Indian (NRI).
The bench stated that the onus is on the assessee to provide evidence to satisfy the requirements of Section 68 of the Income Tax Act, 1961.
The bench observed, regarding the loan from Sri Salim Hamid Menon that the assessee had furnished PAN, income tax return (ITR), and residence details of the lender in Dubai, along with bank statements and financial statements of the firm in which the lender had a stake, which is sufficient as the evidence to satisfy the requirements of Section 68 of the Income Tax Act.
The bench also stated that the violation of other statutes, such as not obtaining approval from the competent authority for accepting foreign direct remittance, does not automatically render the loan as unexplained income under section 68 of the Act.
The two-member bench consisting of Shri Waseem Ahmed (Accountant Member) and Shri T.R. Senthil Kumar (Judicial Member) held that the absence of a formal loan agreement or repayment schedule should not be the basis for treating the unsecured loan as unexplained cash credit.
The bench directed the AO to delete the addition made based on the loan from Sri Salim Hamid Menon.
As a result, the appeal of the assessee is partly allowed.
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