Arrangement of Unsecured Loan through Sham Company: ITAT upholds Addition as Genuineness of Transaction was not Proved [Read Order]

The Hyderabad bench of the ITAT has upheld an addition made by the income tax department in respect of unsecured loan from a sham company as the assessee failed to prove the genuineness and the creditworthiness of the creditor under section 68 of the Income Tax Act, 1961.

During the assessment proceedings, the Assessing Officer asked the assessee, a company located in Hyderabad to prove the credit worthiness of an unsecured loan of approximately Rs. 46 crores from an entity in Kolkata.

The assessee produced the documents from the creditor parties including their income tax return acknowledgments, copies of bank statements reflecting loan transactions, their explanation regarding the source of funds as well as confirmations before the lower authorities thereby discharging the three-folded onus of identity, genuineness, and creditworthiness under section 68 of the Act.

The Tribunal bench comprising Shri A.Mohan Alankamony, Accountant Member And Shri S.S.Godara, Judicial Member relied on the decision of the Apex Court in PCIT Vs. NRA Iron and Steel Pvt. Ltd. wherein it was held that mere filing of documentary evidence does not itself prove genuineness or creditworthiness in an issue pertaining to un-explained cash credits.

Upholding the addition, the Tribunal observed that the assessee is the promoter/Managing Director of a very reputed entity and his staff members in Kolkata only had arranged for the impugned un-secured loans.

“This clinching explanation hardly comes to the assessee’s rescue since going against all human probabilities that a person, un-known in Kolkata would be able to receive such huge sums of unsecured loans without any surety. This is in addition to the fact that he has not produced a single employee having arranged all these loans. We therefore conclude in light of the foregoing settle law as well as the relevant facts and circumstances herein that the assessee has failed to prove genuineness and creditworthiness of the impugned un-secured loan sums. We thus find no reason to interfere with the learned lower authorities’ action making the impugned addition,” the Tribunal concluded.

To Read the full text of the Order CLICK HERE

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Mahendra Kumar Agarwal vs Asst.Commissioner of Income Tax , 2022 TAXSCAN (ITAT) 108 , Shri Y.Ratnakar AR , Shri Rajendra Kumar