2017 (4) TMI 618 - HC - Income Tax

High Court Upholds Disallowance of Unexplained Loans under Income Tax Act

Naresh Chandra Jain Prop., Anil Kumar Jain Versus Commissioner of Income Tax

The Allahabad High Court upheld the disallowance under Section 68 of the Income Tax Act in two appeals where amounts were added as unexplained loans. The ... Unexplained loan addition u/s 68 - Held that:- Assessing Authority on the CIT (Appeals) as well as the Tribunal have disbelieved the case of the assessee having taken interest free loans after recording finding that the persons claimed to be the creditors of the assessee had no creditworthiness inasmuch as the total family income of those persons was found to be ₹ 1,00,000/- per annum and the interest free loans given out of such persons had been claimed and have been made out of tax bearing FDRs that have been got encash pre-mature. Tribunal has also disbelieved the case on both counts of genuineness of transaction as well as creditworthiness. The finding recorded by the Tribunal are well considered and conclusive based on due appraisal of the material on record. The above concluded findings of the fact do not suffer from any infirmity. - Decided against assessee. Issues Involved: Disallowance under Section 68 of the Income Tax ActAnalysis:The appeals before the Allahabad High Court pertained to the disallowance made under Section 68 of the Income Tax Act, 1961. The primary issue raised in both appeals was the addition of certain amounts as unexplained loans under Section 68 of the Act. The first appeal questioned the justification of sustaining an addition of Rs. 2,81,000 as unexplained loan, while the second appeal focused on the sustenance of an addition of Rs. 1,00,000 under Section 68 of the Income Tax Act.The assessees in these cases were involved in business activities and had claimed to have received interest-free loans from individuals not associated with their business or family. However, the Assessing Authority, the CIT (Appeals), and the Tribunal disbelieved the assessees' claims regarding the interest-free loans. They found that the alleged creditors lacked creditworthiness, as their total family income was only Rs. 1,00,000 per annum. Moreover, it was observed that the interest-free loans were purportedly given from tax-bearing Fixed Deposit Receipts (FDRs) that were prematurely encashed.Upon a thorough examination of the facts and circumstances, the Tribunal concluded that the transactions lacked genuineness and creditworthiness. The Tribunal's findings were deemed well-considered and conclusive, based on a comprehensive review of the evidence on record. Consequently, the High Court upheld the Tribunal's findings, ruling in favor of the revenue authorities and against the assessees.In light of the above, the High Court dismissed both appeals, affirming the disallowance under Section 68 of the Income Tax Act. The judgments delivered by the High Court underscored the importance of establishing the genuineness and creditworthiness of transactions to avoid disallowances under the Income Tax Act.