The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that all the three necessary ingredients of Section 68 of the Income Tax Act, 1961 having been been proved in respect of the loan transaction, the loan received from M/s Godavari Pvt. Ltd. is to be treated as genuine.
The assessee company is engaged in the business of Manufacturing of Machine made Plain & Design Carpets & Woolen Yarn. The assessee company filed its return of income on 30/09/2008 declaring total income Nil. Later, the assessee filed its revised return of income on 24/12/2008 declaring a loss of Rs.1,18,54,341/-.
This revised return filed by the assessee was taken due cognizance by the Assessing Officer while framing the assessment. The AO proceeded to treat the unsecured loan received from parties listed totaling to Rs.3,50,15,937/- as unexplained cash credit under Section 68 of the Income Tax Act on the premise that genuineness of the transactions and creditworthiness of the lenders were not proved by the assessee.
Before the CIT(A), the assessee filed additional evidences in terms of Rule 46A of the Income Tax Rules containing the confirmation of accounts from the lenders, their ITR and annual reports.
Before the first appeallate tribunal, the assessee filed additional evidences in terms of Rule 46A of the Income Tax Rules, 1962 containing the confirmation of accounts from the lenders, their ITR and annual reports. These additional evidences were duly forwarded to the AO by the CIT(A) calling for a remand report.
The AO opposed to the admission of additional evidences on the ground that sufficient opportunities were given to the assessee during the course of assessment proceedings.
With regard to all three parties, the AO also sought for details of year wise balances of ledger account in respect of unsecured loan received and interest paid thereon. The assessee submitted year wise ledger account balances of unsecured loan for all the three parties but no details regarding interest paid was filed. Based on all these documents, the AO reiterated the stand taken by him in the assessment. A copy of the remand report was submitted to the assessee for its rejoinder.
The assessee vehemently pleaded that M/s Godavari Private Limited is a group company of the assessee and that the said parties had already furnished the copy of the confirmation, its ITR and audited financial statements before the AO. Merely because the bank statement has not been submitted, the loan taken from the said party cannot be disbelieved. Similar explanation was given by the assessee in respect of loan received from M/s Shearson Investment & Trading Co. Pvt. Ltd.
After hearing both the parties, the tribunal noted that the assessee had furnished the following documents in respect of that parties:- (a) Ledger account of the assessee company as appearing in the books of the lender company. (b) Confirmation from lender company. (c) PAN of the lender company. (d) Income tax return of lender company. (e) Evidences to prove that some amounts were paid by this lender company to discharge the ESIC and PF dues payable by the assessee company. Bank statements of lender company to prove that they have sufficient bank balances in their kitty to advance unsecured loans to the assessee. (f) Annual report of lender company.
The two-member bench consisting of Chandra Mohan Garg (Judicial member) and M. Balaganesh (Accountant member) held that lender company had supplied Carpets and Wools to the assessee company and the said trading liability together with sundry expenses of Rs.2670 has been converted into loan by the assessee company.
Hence, identity of the lender, creditworthiness of the lender, and genuineness of the transactions are proved beyond doubt and hence no addition could be made for the same under Section 68 of the Income Tax Act. Thus, the appeal was dismissed.
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