Unsecured Loan Genuine and Merely Carried Forward from Earlier Year, Not Fresh Borrowing: ITAT Deletes Rs. 2.50 Cr Income Tax Addition u/s 68 [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) allowed the appeal of the assessee, observing that the unsecured loan was carried forward from an earlier year and not taken in the impugned assessment year.

In the instant case, the assessee’s case was reopened on the grounds of receiving an unsecured loan amount to Rs.2.5 crores. The AO treated this alleged loan as an accommodation entry and treated this as a bogus transaction.

The recorded reason was supplied to the assessee, Anandmangal Investment & Finance Pvt Ltd, and accordingly assessee submitted to the objection that the alleged loan was not transacted to the impugned assessment year, but the assessee received this amount from M/s Piyali Trading Company, previously known as Revathy Resorts Pvt Ltd for A.Y. 2002-03.

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So, the entire transaction was made for the financial year 2001-02 on 30/03/2002 amounting to Rs.50 lakhs each in 5 installments in the State Bank of India, Novalakha Branch, Indore. Hence, the addition cannot be sustained for the impugned assessment year. Finally, the assessment was framed by an additional amount of Rs 2.5 crores with the total income of the assessee.

Being aggrieved, the assessee filed an appeal before the CIT(A). The assessee challenged the addition. The CIT(A) rejected both the grounds of the assessee’s appeal. Being aggrieved by the order, the assessee filed an appeal before the Tribunal.

The assessee argued the matter and submitted a paper book containing 66 pages. He stated that after receiving the recorded reasons and notice issued under section 142(1) of the Act, the assessee, by letter, submitted that the entire transaction pertained to 30/03/2002, relevant to A.Y. 2002-03.

He further clarified that the cheque number mentioned in the bank account was incorrect and accordingly provided the correct cheque number. Subsequently, the assessee furnished further details before the AO vide letter. The relevant supporting documents were also filed before the AO.

The assessee had enclosed confirmations of accounts, receipts, the State Bank of India, Indore bank statement, the audited financial statements as on 31/03/2002, as well as confirmations from loan creditors.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The Tribunal observed that despite the assessee furnishing documentary evidence, the AO proceeded to treat the entire transaction as bogus without assigning cogent reasons. On the other hand, no material has been brought on record by the AO to show that any loan transaction took place in the impugned assessment year. The fact that the loan transaction pertained to A.Y. 2002-03 is duly acknowledged in the appellate order itself.

The Tribunal further observed that the first appellate authority had failed to identify any specific defect in the loan transaction. Further, the loan creditor is a registered company under the Companies Act, 1956. The issue of creditworthiness, therefore, cannot be re-examined in the impugned year in respect of a loan already accepted in earlier years.

The two-member bench comprising Vikram Singh Yadav (Accountant Member) and Anikesh Banerjee (Judicial Member) held that no fresh loan was taken during the impugned year; rather, the balance was merely carried forward in the name of M/s Revathy Resorts Pvt. Ltd. In these circumstances, the addition of Rs.2.50 crores sustained by the authorities is unjustified and directed to delete the addition.

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