Unsecured loans from lender companies deemed genuine, additions under sections 68 and 69C deleted following precedent

ITAT Delhi allowed the assessee's appeal regarding additions made under sections 68 and 69C of the Income Tax Act. The tribunal found that unsecured loans received from two lender companies were genuine transactions, not accommodation entries, based on precedent from Flourish Builders & Developers Pvt. Ltd. where identical circumstances involving the same lender companies were deemed legitimate. Consequently, the addition made under section 68 for unexplained cash credits was deleted. Since the loans were established as genuine, the corresponding addition under section 69C for unexplained expenditure related to commission payments was also deleted. The tribunal ruled in favor of the assessee, directing deletion of both additions.

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ISSUES:

Whether the addition made towards unsecured loan of Rs. 3,25,00,000/- under section 68 of the Income Tax Act, 1961 is justified.Whether the addition made on account of unexplained expenditure of Rs. 3,25,000/- under section 69C of the Act, treating the receipt of unsecured loan as a bogus transaction, is justified.

RULINGS / HOLDINGS:

The loans received from the two lender companies fulfill all three necessary ingredients of section 68 of the Act, namely "identity of the lender, creditworthiness of the lender and genuineness of the transaction," and therefore cannot be treated as accommodation entries; the addition under section 68 is deleted.Since the loan of Rs. 3,25,00,000/- is held to be genuine, the addition of Rs. 3,25,000/- towards commission expenditure under section 69C of the Act is not sustainable and is accordingly deleted.

RATIONALE:

The legal framework applied is section 68 of the Income Tax Act, which requires the assessee to prove the "identity of the lender, creditworthiness of the lender and genuineness of the transaction."The assessee discharged the onus by furnishing bank statements, confirmations from lenders with PAN and signatures, audited financial statements of the lenders showing sufficient own funds, and evidence that the loans were routed through regular banking channels.The sole basis for addition was the statement of the Director recorded under sections 132(4) and 131 of the Act, which was not supported by any collaborative material or adverse findings during the search and seizure operation.No adverse inferences were drawn on the documents furnished by the assessee, nor were notices under section 133(6) issued to verify the documents' veracity.Precedential support includes a coordinate bench decision where similar loans from the same lender companies were held genuine, and a prior Tribunal ruling deleting additions based on similar facts and the same lender companies.The Tribunal distinguished the case from mere reliance on statements by emphasizing the absence of corroborative evidence indicating the loans were accommodation entries.

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