2024 (1) TMI 218 - HC - Income Tax

Tax Liability Confirmed: Unsubstantiated Loan Transaction Leads to Income Addition Under Section 68 of Income Tax Act

Valley Iron And Steel Co. Ltd. Versus Principal Commissioner Of Income Tax Central-1

The SC upheld the tax authority's order adding a Rs. 14,00,000 loan to the assessee's income under Section 68 of the Income Tax Act. The court found the ... Addition u/s 68 - AO doubted the genuineness of the loan transaction and hence added the amount to the income of the appellant/assessee - loan agreement is titled “unsecured term loan agreement” - HELD THAT:- According to us, the loan agreement entered into by the appellant/assessee with the lender i.e., GWPL, raises more questions than answers as to what was the reality. Strangely, this agreement did not impose any burden on the appellant assessee i.e., the borrower, with regard to interest. The loan, apparently, could be repaid after four years in three annual installments, albeit on mutually agreed terms. Since the lender was a private limited company, it was perhaps open to the appellant/assessee i.e., the borrower, to produce the erstwhile directors to establish the genuineness of the loan agreement. None of these steps were taken by the appellant/assessee. Appellant/assessee, on the other hand, tried to shift the onus onto the respondent/revenue. The submission that the AO should have issued notices to the lender i.e., GWPL does not impress us. The reason being that if the appellant/assessee was unable to produce the requisite material since the lender i.e., GWPL had been struck off from the Register of Companies, it would have been equally futile if notices had been issued by the AO. In any event, in our opinion, the initial onus was not discharged by the appellant/assessee. Besides this, the argument advanced that since there was remission of liability Section 41(1) of the Act would apply and not the provisions of Section 68 of the Act, as rightly held by the Tribunal, is an untenable submission. Since the genuineness of the loan transaction was doubted, no liability, in law, fructified requiring remission. Decided against assessee. Issues involved:The present appeal concerns Assessment Year (AY) 2018-19. The appellant/assessee seeks to challenge the order passed by the Income Tax Appellate Tribunal regarding the addition of a loan amount to the income of the appellant/assessee under Section 68 of the Income Tax Act, 1961.Details of the Judgment:1. Loan Transaction and Assessment Proceedings:The appellant/assessee received a loan of Rs.14,00,000 from Gee Wire Pvt. Ltd (GWPL), which was added to their income by the Assessing Officer under Section 68 of the Income Tax Act. The loan agreement raised doubts as it did not require the appellant/assessee to pay any interest to GWPL and allowed repayment after four years in three annual installments.2. Contentions of the Appellant:The appellant argued that the 'triple test' for discharging the onus was satisfied, establishing the identity, creditworthiness, and genuineness of the transaction. They claimed that since GWPL was struck off from the Register of Companies, they could not provide further information about the lender.3. Arguments of the Respondent:The respondent contended that the appellant failed to prove the genuineness and creditworthiness of GWPL. They argued that Section 41(1) of the Act should apply due to remission of liability, which was not fully appreciated by the authorities.4. Court's Analysis and Decision:The court found the loan agreement raised more questions than answers and noted that the appellant did not take steps to establish the genuineness of the transaction. The court held that the initial onus was not discharged by the appellant and rejected the argument that Section 41(1) applied instead of Section 68. The court declined to interfere with the impugned order, closing the appeal and pending applications.5. Conclusion:The court upheld the addition of the loan amount to the appellant's income, emphasizing the lack of evidence to prove the genuineness of the transaction with GWPL. The court's decision was based on the failure of the appellant to meet the burden of proof required under the Income Tax Act.