2020 (7) TMI 281 - AT - Income Tax

ITAT rules in favor of Supreme BuildCap Private Limited in Income Tax Act Section 68 case

Supreme Build-Cap Pvt. Ltd. Versus ACIT, Central Circle–05, New Delhi.

The Income Tax Appellate Tribunal (ITAT) ruled in favor of the assessee, Supreme BuildCap Private Limited, in a case involving the addition of Rs. 5 ... Addition u/s 68 - Unsecured Loan - Assessee said he has received the above loan from M/s. Maharassa Visions Pvt. Ltd., which is one of the group concerns - HELD THAT:- In this case, the source of money lent is loan from another group company; group company received money from the assessee itself, the transactions is duly reflected in the balance sheets of respective companies. Even the assessing officer himself has stated that source of money lent to the assessee is the assessee itself. If the view of the ld AO is to be believed then, NBFC companies who have limited earning but lent the money out of the money borrowed will never pass the test of section 68 of the act. Thus, merely filing Nil return by lender, if the sources are clearly established with overwhelming evidences of the bank statements of all the concerned parties duly supported by the annual accounts, cannot lead to addition in the hands of the borrower. We allow Ground of the appeal of the assessee, which is against the confirmation of the additions of ₹ 5 Crores u/s 68 of the act with respect to above unsecured loan. Issues Involved:1. Addition under Section 68 of the Income Tax Act, 1961.2. Creditworthiness and genuineness of the loan transaction.3. Onus of proving the identity, creditworthiness, and genuineness of the lender.Detailed Analysis:1. Addition under Section 68 of the Income Tax Act, 1961:The primary issue in the appeal was the addition of Rs. 5 crores made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. The AO added this amount to the income of the assessee, Supreme BuildCap Private Limited, on the grounds that the assessee failed to establish the creditworthiness of the lender, M/s Maharaasa Visions Pvt Ltd, and the genuineness of the transaction.2. Creditworthiness and Genuineness of the Loan Transaction:The AO scrutinized the unsecured loan transaction and concluded that M/s Maharaasa Visions Pvt Ltd had no substantial income or income-generating apparatus. The lender's bank account showed negligible transactions except for the loan transaction under scrutiny. The AO also noted that the lender received the loan amount from M/s MKT Investments Pvt Ltd, which in turn had received the same amount from the assessee. This led the AO to conclude that the assessee routed its own money through the lender, thus questioning the genuineness and creditworthiness of the transaction.The Commissioner of Income Tax (Appeals) [CIT (A)] upheld the AO's decision, emphasizing that the lender's financial statements and bank transactions did not support its creditworthiness. The CIT (A) referenced several judicial precedents to support the view that mere submission of PAN numbers and bank statements does not suffice to prove the creditworthiness and genuineness of the transaction.3. Onus of Proving Identity, Creditworthiness, and Genuineness:The assessee argued that it had discharged its onus by providing comprehensive documentation, including bank statements, income tax returns, financial statements, and confirmations from the lender and the intermediary company, MKT Investments Pvt Ltd. The assessee also highlighted that the transaction was conducted through proper banking channels and that the lender was a group company.The assessee further explained that the funds were part of a planned real estate tender, which did not materialize, leading to the return of the funds. The assessee contended that the lender's lack of income or assets did not necessarily negate its creditworthiness, as the funds were sourced from another group company and were part of internal financial arrangements.Tribunal's Decision:The Income Tax Appellate Tribunal (ITAT) carefully considered the arguments and evidence presented by both parties. The ITAT found that the assessee had sufficiently demonstrated the identity, creditworthiness, and genuineness of the transaction. The ITAT noted that the lender was a group company, and the funds were sourced from another group entity, MKT Investments Pvt Ltd, which in turn had received the funds from the assessee. The ITAT emphasized that the entire transaction was transparent, conducted through banking channels, and adequately documented.The ITAT concluded that the addition under Section 68 was not justified as the assessee had provided overwhelming evidence to establish the source and genuineness of the funds. The ITAT allowed the appeal in favor of the assessee, deleting the addition of Rs. 5 crores.Conclusion:The appeal was partly allowed, with the ITAT ruling in favor of the assessee on the primary issue of the addition under Section 68. The ITAT found that the assessee had successfully demonstrated the identity, creditworthiness, and genuineness of the loan transaction, thereby overturning the decisions of the AO and CIT (A).