No addition is Permitted u/s 68 of Income Tax Act as Unsecured Loan when Cash Deposits in Bank A/c of Lender Firm is Accepted: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition made under Section 68 of the Income Tax Act, 1961 on unsecured loan obtained from a firm by the Assessee on the ground that the identity, creditworthiness, and genuineness of the transaction stands proved. It was found that the Cash deposits In Bank account of lender firm is accepted.

Devki Nandan Maheshwari , the Assessee is engaged in the trading of cloth business and commission business thereon. The AO noticed that during the impugned AY 2016-17, the Assessee had received a loan of Rs 50 lacs from one Banwari Lal Naresh Kumar. The AO observed that there were cash deposits in the bank account of the lenders which was the immediate source of credit for the lender and hence, sought to disbelieve the loan given to the Assessee. The AO accordingly made addition of Rs. 50 lacs under Section 68 and disallowed the interest expense thereon.

The Bench noted that partner of the lender firm was examined under Section 131(1A) wherein he duly explained the sources of cash deposits made in the bank account of his partnership firm and confirmed the fact of advancing loan to the Assessee. It was found that in Section 131(1A) statement it was stated that cash deposit made in the bank are out of cash generated on a daily basis out of sales and hence, no additions were made in the hands of the firm by its AO.

It was viewed that the scrutiny assessment proceedings of the lender firm for the very same assessment year itself explains the creditworthiness of the lender and genuineness of the loan transaction with the Assessee.

Section 68 of Income tax Act aims to ensure individuals and corporations transparently disclose their income by addressing unexplained cash credits in their books of accounts, placing the responsibility on the taxpayer to prove the legitimacy of such credits.

The two member bench of comprising Amit Shukla ( Judicial Member ) and M. Balaganesh ( Accountant Member ) observed that “once the cash deposits made in the bank account of the lender firm had been accepted as coming from explained sources by the revenue under scrutiny assessment of the lender, the revenue cannot take a divergent stand in the case of the Assessee that those cash deposits had emanated out of undisclosed sources of the Assessee which had been deposited in the lender's bank account and monies received by Assessee in the form of unsecured loan”.

While allowing the appeal, the ITAT concluded that Assessee had duly proved the three necessary ingredients of Section 68 in respect of unsecured loan.

To Read the full text of the Order CLICK HERE

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