In a major ruling, the Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition under section 68 of the Income Tax Act, 1961 upon submission of requisite documents by the taxpayer.
The Assessing Officer ( AO ) had completely proceeded on a misconception that M/s. Powmex Sales Pvt. Ltd had invested in share capital and share premium of the assessee company which is factually incorrect. Factually, M/s. Powmex Sales Pvt. Ltd had only granted an unsecured loan of Rs. 90 lakhs to the assessee company during the year under consideration. No enquiries whatsoever were sought to be carried out by the AO at the correct address of the M/s. Powmex Sales Pvt. Ltd.
Further, on the contrary vehemently relied on the Investigation Report of the Kolkata Investigation Wing dated 25.11.2016 where enquiries were purportedly carried out by the Kolkata Investigation Wing at the wrong address of the M/s. Powmex Sales Pvt. Ltd, and proceeded to treat the loan received by the assessee company in the same of Rs. 90 lakhs as unexplained cash credit under Section 68 of the Income Tax Act.
The Section 68 of the Income Tax Act deals with the unexplained cash credit. Where any sum of money was found credited in the books of the assessee, the assessee should explain to the AO satisfactorily the nature and source of the sum so credited and establish that the sum in question was not his income. If he does not offer any explanation, or explanation offered was not found satisfactory in the opinion of the AO then, such sum may be charged as the income of the assessee.
They bench observed that the assessee had successfully demonstrated all three prerequisites outlined in Section 68 of the Income Tax Act by providing the necessary documents to the AO. Furthermore, the AO did not discover any adverse information in these documents nor did they initiate any further inquiry regarding the lender company’s correct address.
Thus, the two-member bench of the ITAT, including Anubav Sharma ( Judicial member ) and M. Balaganesh ( Accountant member ) removed the addition related to the unsecured loan received by M/s. Powmex Sales Pvt. Ltd under Section 68 of the Income Tax Act.
Accordingly, the appeal of the assessee was partly allowed.
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