Transaction of Deposit by Assessee Company were Genuine: ITAT deletes Unexplained Credits u/s 68 of Income Tax Act [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) deleted unexplained credits under Section 68 of the Income Tax Act, 1961, as it found the deposit transactions by the Assessee Company to be genuine.

The present appeal has been filed against the order of the Income Tax Appellate Tribunal, Delhi Bench 'A', New Delhi dated 13.09.2023 in Income Tax Appeal for A.Y. 2015-16. By that order, the Tribunal has partly allowed the appeal to the extent the Tribunal has dismissed the appeal of the revenue on the issue of alleged unexplained credits by applying Section 68 of the Income Tax Act.

Primarily, the assessee disclosed Closing Balance Investment Rs. 56,99,55,593/-. Upon queries raised during the assessment proceedings, it was disclosed to the Assessing Officer of the assessee that it had received unsecured interest bearing loans from three corporate entities namely - M/s Jellotic Supply Pvt. Ltd., M/s Paramic Goods Pvt. Ltd. and M/s Sankhuwala Commercial Pvt. Ltd. for Rs. 2,40,00,000/-; Rs. 4,90,00,000/- and Rs. 2,55,00,000/-. After considering the replies the Assessing Officer proceeded to disallow the above loan amounts and treated the same to be undisclosed investment and added the same to the income of the assessee.

The Audit Officer reviewed Investor Companies' bank statements, noting prompt transfers to the assessee. Supporting documents like loan confirmations, certificates, and financial statements were provided to validate creditors' authenticity. No cash deposits pre-loan or adverse findings on creditors' legitimacy were found. No indication of creditor involvement in fraudulent activities was detected by the Audit Officer.

The loans were interest bearing loans and the related interest income is duly reflected in the ITR of the Creditor Companies. The A.O. without having any basis observed that the Creditor Companies are 'shell' Companies on the basis of common Directors among Group Companies and the rotation of funds/money in the Group Companies which is unfounded.

Regarding Orbit Contractors and Financial Pvt. Ltd., no response was received to the notice issued under section 133(6). However, the assessee provided necessary documentation, including ITR acknowledgments for Assessment Year 2014-15 and 2015-16, balance sheet, P & L account for the year ending 31.03.2015, company master data, Form 16A for interest paid on loans, and details of the lending company.

Documentation such as loan confirmations, certificates of incorporation, PAN numbers, ITR copies, balance sheets, P & L accounts, and bank statements of the creditor were also provided as evidence of identity, creditworthiness, and authenticity. The assessee successfully established the identity of parties and genuineness of the transaction, conducted through bank channels. Furthermore, the source of investment was not required to be proven in this case.

Once the deposits were credited in the bank account of the assessee through the banking channel, prima facie evidence existed of genuine transactions. The Assessing Officer failed to establish that the money deposited by the creditors was not theirs but routed through them by the assessee. The Tribunal found no proof that such money had been received by the creditors through cash deposits made by the assessee. Despite common directors between the two companies, there was no evidence to establish that the creditors were shell companies. The observation made by the Assessing Officer was deemed unfounded.

The two-member bench of the tribunal concluded that based on loan confirmation, certificate of incorporation, PAN registration, copy of the ITR, balance sheet, profit & loss account, and bank statement of the creditors, the transactions of deposit received by the assessee company were genuine. No question of law arises based on the Tribunal's findings.

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