The Income Tax Appellate Tribunal (ITAT), Chennai Bench ruled that addition on account of unsecured loans can not be made if the assessee proves Genuineness of the transaction.
The assessee company, M/s. K.P.Manish Global Ingredients Pvt. Ltd. is engaged in the business of dealing in drugs, chemical ingredients, etc. filed its return of income for the assessment year 2009-10 declaring total income. The case was taken up for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the assessee has received an unsecured loan to the tune of Rs.9,90,56,567/- from several persons. Therefore, he called upon the assessee to file necessary information including the name and address of persons from whom unsecured loans were taken. The Assessing Officer thereafter issued letters u/s.133(6) to all persons calling for information to confirm transactions with the assessee, for which parties have filed various details called for by the Assessing Officer, including confirmation letters to confirm loan transactions with the assessee.
The Assessing Officer on perusal of confirmation received from parties noticed that unsecured loans shown to have been received from Mr. Umed Mehta and his floated concerns are dubious as Mr. Umed Mehta has stated during the course of a survey that the entire transaction related to M/s.Kawarlal group was only accommodation entries. The Assessing Officer, after analyzing the entire transactions of Mr.Umed Mehta, observed that transactions involved the circulation of funds among group concerns.
Therefore, the AO opined that unsecured loans in the books of account were nothing but a device adopted to introduce its own unexplained money into the account. The Assessing Officer further observed that just because impugned transactions have been routed through banking channels, the same cannot be considered genuine. Accordingly, he opined that entire transactions routed through various company accounts are sham transactions and hence, made additions towards unsecured loans received from three companies belonging to Mr.Umed Mehta u/s.68 of the Income Tax Act, 1961.
The assessee being aggrieved by the AO’s order appealed before the CIT(A), wherein it held that payment by account payee cheque is not sufficient to establish the genuineness of transactions. What is relevant to see is transactions have passed the test of genuineness in a real sense, which means the assessee should prove beyond doubt the nature of credits and source for such credits. In this case, it is admitted fact that the assessee has routed its unaccounted income in the form of unsecured loans through various group concerns, which is nothing but a sham transaction.
C.A. T.Banusekar on behalf of the assessee urged that learned CIT(A) has erred in confirming additions made towards unsecured loan received from M/s. C.K.Exports, M/s. Mehta Motors & General Finance Company and M/s. Swastic Trading Corporation, without appreciating the fact that unsecured loans are genuine which is supported by necessary evidence.
The coram of Judicial Member V.Durga Rao and Accountant Member G.Manjunatha while quashing the order of the CIT(A) held that assessee has discharged burden caste upon u/s. 68 of the Act to prove unsecured loans received from M/s.C.K.Exports, M/s. Mehta Motors & General Finance Company and M/s. Swastic Trading Corporation. The Assessing Officer as well as learned CIT(A) without appreciating the evidence filed by the assessee has simply made additions on the suspicious ground that said sum was undisclosed income of the assessee.
Therefore, the ITAT directed the AO to delete the additions made towards unsecured loans received from three entities.