Unsecured Loan Identity, Genuineness, and Creditworthiness Proved by Audited Financials: ITAT Upholds Deletion of Addition [Read Order]
The Tribunal held that when the assessee discharged onus by providing the lender's identity, PAN, and confirmation, and substantiated creditworthiness with the lender's audited financials showing substantial turnover and profit, the addition under Section 68 was not sustainable
ITAT Jaipur, ITAT Upholds, Unsecured Loan Identity
ITAT Jaipur, ITAT Upholds, Unsecured Loan Identity
The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) confirmed the deletion of an addition of ₹53,20,833 made by the Assessing Officer (AO) observing that unsecured loan identity, genuineness and creditworthiness proved by audited financials.
Samarth Lifestyle Retailing Pvt. Ltd. (assessee) received an unsecured loan of ₹50,00,000/- from Survaas Homes Pvt. Ltd. during the Assessment Year (A.Y.) 2018-19.
The Assessing Officer (AO) noted the assessee had failed to submit a copy of the loan agreement, the lender's bank statement, or the lender's return of income and questioned the creditworthiness, identity, and genuineness of the loan transaction.
The assessee submitted the loan confirmation, details of the broker who arranged the loan (GD Associates), and a declaration that the transaction was routed through banking channels. The assessee provided the lender's PAN and address, asserting that the lender was genuine.
The assessee requested the AO to directly verify the lender's financial standing using the department's AST software or Section 133(6) notice. The AO rejected the explanation, highlighting that the lender was engaged in building/construction, not acting as an NBFC, and that the assessee failed to provide supporting documents like the loan agreement.
The AO treated the loan as an unexplained cash credit under Section 68 of the Income Tax Act, 1961, and disallowed the related interest under Section 36(1)(iii) of the Income Tax Act, 1961. Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A).
The CIT(A) examined the material, including the audited financial statements of the lending company (Survaas Homes Pvt. Ltd.) and found that the lender had a substantial turnover of ₹12,47,20,000 and profit before tax of ₹59,10,336.
The CIT(A) concluded that the assessee had successfully discharged the initial onus mandated by law by providing evidence to prove the identity, creditworthiness, and genuineness of the loan transaction, especially since the lender had a robust financial standing to advance the loan amount.
The CIT(A) held that the addition under Section 68 and the related interest disallowance were directed to be deleted. Aggrieved by the CIT(A)'s order, the department filed an appeal before the ITAT.
The two-member bench comprising Gagan Goyal (Accountant Member) and Narinder Kumar (Judicial Member) noted that the department failed to demonstrate that the financial statements relied upon by the CIT(A) were submitted for the first time during the appellate proceedings or were not accessible to the AO.
The tribunal upheld the deletion of the addition by noting that the CIT(A) recorded satisfaction based on the lender's audited financial figures, which adequately established the creditworthiness.
The Tribunal found no reason to interfere with the findings of the CIT(A) and upheld the deletion of both the loan addition and the interest disallowance. In the result, the appeal filed by the department was dismissed.
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