The Visakhapatnam Bench of Income Tax Appellate Tribunal ( ITAT ) ruled to delete the addition made by the Assessing Officer ( AO ) for unsecured loans, affirming the validity of the sources provided by the assessee.
Aravind Reddy Devagiri, appellant-assessee, was a managing partner in M/s. A.R. Constructions, with a 75% profit share, and also held partnership interests in M/s. Lakshmi Cold Storage and M/s. Vigneswara Cold Storage. For the Assessment Year (A.Y.) 2017-18, he filed his income tax return on March 8, 2018, reporting a total income of Rs. 7,54,800.
During the assessment process, the AO observed that while the assessee had disclosed a capital balance of Rs. 48,53,245 in M/s. A.R. Constructions, he had not accounted for capital introduced in M/s. Lakshmi Cold Storage and M/s. Vigneswara Cold Storage. Specifically, his investments amounted to Rs. 1,45,64,960 and Rs. 86,64,883, representing his 40% partnership shares in these firms.
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Believing that income had escaped assessment under section 147, the AO issued a notice under section 148 on March 12, 2020, after receiving prior approval from the Joint Commissioner of Income Tax (JCIT).The assessee did not submit a revised return but responded to notices issued under section 142(1) of the Act.
Following an examination of these responses, the AO proceeded with additions, including Rs. 11,40,665 for cash introduced in the firm under section 68 read with section 115BBE, Rs. 24,50,000 for capital introduced, Rs. 1,94,99,178 for investments in the two firms, Rs. 1,40,000 as an additional investment, and Rs. 9,65,000 under section 56(2)(x) of the Act.
Challenging these additions, the appellant filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], reiterating the submissions made to the AO. However, the CIT(A) dismissed the appeal, upholding the AO’s additions in their entirety. Aggrieved by the decision of the CIT(A), the assessee appealed before the tribunal.
The assessee challenged an addition of Rs. 24,50,000 under section 68 of the Act, asserting that this amount was sourced from unsecured loans obtained from several parties. The assessee’s representative presented confirmation letters, Aadhaar cards, PAN cards, and bank statements from the lenders, showing that the loans were processed through proper banking channels.
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The Departmental Representative (DR) argued in favor of the Revenue Authorities’ position.
After reviewing the materials, the tribunal found that the assessee had indeed received unsecured loans totaling Rs. 24,50,000 and provided sufficient documentation to support this claim. Although the AO contended that the assessee failed to prove the source of the loan amounts, the tribunal noted that the Revenue did not dispute the origins of the funds in the lenders’ accounts.
The two member bench comprising Duvvuru RL Reddy(Judicial Member) and S.Balakrishnan(Accountant Member)concluded that the assessee adequately explained the source of the loans. Therefore, it allowed the appeal and deleted the addition made by the AO.
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