Unexplained Loans of Rs. 4.28 Crore: ITAT upholds CIT(A) Decision to delete Addition [Read Order]

The Jaipur Bench of Income Tax Appellate Tribunal(ITAT) upheld the Commissioner of Income tax(Appeals)[CIT(A)]'s decision to delete the Rs. 4.28 crore addition under section 68 of Income Tax Act,1961 for unexplained loans, finding the loans were repaid within the same year and conducted through banking channels.

The Revenue-appellant,appealed against the order dated 25/06/2024 for the assessment year 2011-12, passed by the CIT(A), following an appeal against the assessment order dated 28.12.2018 under section 147 read with section 143(3) of the Act by the Assessing Officer(AO).

In this case,Harsh Stock Portfolio Pvt. Ltd.,respondent-assessee,filed its income tax return on 29.09.2011, declaring Rs. 40/- as income. It was found that the assessee received Rs. 2,00,00,000/- from M/s Wellworth Tradelink Pvt. Ltd. and Rs. 1,08,00,000/- from Desire Vincom Pvt. Ltd., both considered shell companies. These funds were routed through intermediaries to real business beneficiaries.

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After issuing a notice under section 148 on 26.03.2018, the assessee filed its return on 15.11.2018, explaining the loans. The AO determined that the assessee failed to prove the genuineness of the transactions, noting that the loans were from shell companies, and added Rs. 4,28,00,000/- under section 68 of the Act.

The assessee appealed to the CIT(A) against the AO's order, which added Rs. 4.28 crore as unexplained loans under section 68. The AO had initially reopened the case based on penny stock trading, but no addition was made for capital gains. The assessee argued that the new addition was unrelated to the original reopening reason.

Evidence of repaid loans was provided, and the CIT(A) referred to relevant court rulings, which stated the AO could not make additions without issuing a fresh notice. The case raised jurisdictional issues over the AO's authority to add unrelated amounts.

The Revenue appealed before the tribunal.

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The two member bench comprising Dr.S.Seethalakshmi(Judicial Member) and Rathod Kamlesh Jayantbhai(Accountant Member) heard the rival contentions and reviewed the materials presented. The revenue contested the CIT(A)'s decision to delete the addition of Rs. 4,28,00,000/- made by the Assessing Officer under section 68 for unexplained unsecured loans.

The revenue argued that the loans were routed through shell companies, M/s Wellworth Tradelink Pvt. Ltd. and Desire Vincom Pvt. Ltd., to introduce unaccounted money into the assessee’s books.

Read More: Delhi HC Upholds Deletion of Rs. 4 Crore Addition for Unexplained Investments, dismisses Revenue’s Appeal

The case involved information from the Additional Director of Income Tax(ADIT) (Inv.)(OSD) revealing that the assessee had received credit entries from these shell companies. The assessee responded by submitting confirmation of the loans, along with bank statements, and claimed that all transactions were through banking channels and the loans were repaid during the same year.

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The AO added the entire amount of Rs. 4,28,00,000/- as unexplained loans, stating that the assessee failed to prove the genuineness of the transactions. The assessee appealed to the CIT(A), who ruled that the reopening was based on the issue of capital gains and penny stock trading, not the unsecured loans. Since no addition was made on the former issue, the CIT(A) deleted the addition on the loans, citing legal precedents.

The appellate tribunal observed that the loans were repaid within the same year and all transactions were conducted through banking channels. Relying on a Gujarat High Court decision, the ITAT agreed that no addition should be made under section 68 when loans were repaid in the same year and the transactions were through proper channels.

Ultimately, the tribunal dismissed the revenue's appeal, agreeing with the CIT(A)'s decision.

To Read the full text of the Order CLICK HERE

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