The Delhi Bench of Income Tax Appellate Tribunal (ITAT) held that the unsecured loan availed by the assessee cannot be treated as unexplained cash credit under Section 68 of the Income Tax Act,1961 as the assessee has proved the genuineness of the loan transaction, and hence deleted the disallowance of interest paid on such loan of 10 crores.
The assessee KRBL Foods Ltd is an Indian company. A search and seizure operation under Section 132 of the Income Tax Act was conducted in case of the assessee as well as other group entities. As a consequence of proceeding notice under Section 153A of the Income Tax Act was initiated against the assessee. In response to notice issued the assessee filed its return of income declaring loss of Rs.3,49,55,515.
During the scrutiny it was found that the assessee had received unsecured loan of Rs.10 crores from M/s. Shashi Foods India Pvt. Ltd. The Assessing Officer (AO) ultimately concluding the proceeding stated that the creditworthiness of the creditor and genuineness of the unsecured loan availed of Rs.10 crores could not be established by the assessee. Accordingly, he treated the unsecured loan of Rs.10 crores as unexplained cash credit under Section 68 of the Income Tax Act and added back to the income of the assessee.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] where it was held that the unsecured loan availed by the assessee cannot be treated as unexplained cash credit under Section 68 of the Income Tax Act, thus disallowance of interest paid on such loan was deleted.
Revenue filed an appeal before the ITAT. The Departmental Representative Sapna Bhatia contended that in course of assessment proceeding during the investigation it was found that the creditor M/s. Shashi Foods India Pvt. Ltd. has availed bogus purchase bills from entities controlled by Dinesh Jain so the genuineness of the unsecured loan given to the assessee also remains doubtful, further he submitted thatthe entire transaction relating to unsecured loan is a cooked up story, as the same amount of fund is rotating in different group entities controlled by certain persons.
The Assessee Representative Vinod Bindal and Ms. Rinky Sharma contended that the assessee has furnished all supporting evidence to prove the loan transaction and in no way, the loan availed could have been treated as unexplained cash credit.
The Bench comprising of Saktijit Dey, Judicial Member and M. Balaganesh, Accountant Member observed that since the assessee has discharged the initial onus of proving the genuineness of the loan transaction, the loan availed could not have been treated as unexplained cash credit in absence of any contrary evidence brought on record by the Assessing Officer to disprove assessee’s claim.
Hence, the Tribunal upheld the decision of CIT (A) and deleted the addition made under Section 68 of the Income Tax Act and the interest paid on the unsecured loan.
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