‘General Modus Operandi’ of Lenders Insufficient to Sustain S.68 Addition: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, upheld deletion of addition made under Section 68 of the Income Tax Act after finding that the assessee had furnished documentary evidence in support of the loan transactions.

The assessee, Kind Building Solutions Private Limited, engaged in the business of real estate development, had filed return of income declaring loss of Rs.1.57 crore for Assessment Year 2015-16. During scrutiny assessment proceedings, the AO observed that the assessee had received unsecured loans aggregating to Rs.14.20 crore, which were repaid during the same year.

The AO observed that search and seizure action conducted in financial year 2010-11 had revealed that the lending entities were engaged in providing accommodation entries. Accordingly, the AO treated the loans received by the assessee as unexplained cash credits under Section 68 of the Act.

Before the CIT(A), the assessee contended that complete documentary evidence had been furnished before the AO. The assessee further contended that the loans had been repaid through banking channels and that tax had also been deducted at source on interest payments.

The CIT(A) deleted the addition after observing that the AO had relied on general allegations against the lenders without bringing any material linking the assessee to accommodation entry transactions.

Aggrieved, the Revenue preferred an appeal before the Tribunal.

Before the Tribunal, the Revenue contended that the lending companies were paper entities managed by accommodation entry providers and therefore the addition under Section 68 had rightly been made.

However, the assessee supported the order passed by the CIT(A).

The Tribunal comprising Yogesh Kumar US (Judicial Member) and Manish Agarwal (Accountant Member) observed that the assessee had furnished confirmations, bank statements, income tax particulars and audited financial statements of the lenders in support of the loan transactions.

It further observed that the AO had not carried out any independent enquiry or investigation and had relied only upon material gathered during search proceedings conducted several years earlier in the case of third parties.

Accordingly, the Tribunal upheld the order passed by the CIT(A) deleting the addition of Rs.14.20 crore made under Section 68 of the Act.

The Revenue’s appeal was dismissed.

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