2025 (4) TMI 1035 - AT - Income Tax

Revenue's appeal dismissed as assessee proves identity and genuineness of unsecured loan transactions under Section 68

Income Tax Officer, Delhi Versus RMP Holdings Private Limited

Income Tax Officer, Delhi Versus RMP Holdings Private Limited - TMI The core legal question considered in this appeal pertains to the applicability of section 68 of the Income-tax Act, 1961, specifically whether the addition of Rs. 1,65,10,000/- as unexplained cash credit was justified when the assessee had taken an unsecured loan from M/s Rabik Exports Pvt. Ltd. and repaid it within the same financial year. The key issues examined include the identity, creditworthiness, and genuineness of the lender, the validity of the loan transaction given the non-traceability of the lender company at the registered address, and the legal effect of repayment of the loan within the same assessment year.Regarding the first issue of identity, creditworthiness, and genuineness of the lender, the legal framework revolves around section 68 of the Income-tax Act, which mandates that when an assessee credits an amount in their books as a loan or deposit, the assessee must satisfactorily explain the nature and source of such credit. The Assessing Officer (AO) challenged the genuineness of the loan on the basis that the lender company, Rabik Exports Pvt. Ltd., was not traceable at the registered office address and had not filed income tax returns for the relevant assessment years. The AO relied on the physical inspection report by the Inspector and the non-service of notices under section 133(6) as evidence to doubt the transaction.The assessee responded by submitting loan confirmations, bank statements evidencing receipt and repayment of the loan through banking channels, and argued that the lender had net worth approximating Rs. 7 crore and was established since 1998. The assessee also explained the non-availability of the lender's directors due to the death of the director who had first-hand knowledge. The AO, however, rejected these submissions and made the addition under section 68 treating the loan as unexplained cash credit.On appeal, the Commissioner of Income-tax (Appeals) [CIT(A)] undertook a detailed analysis of the submissions and evidences. The CIT(A) noted that the loan was received and repaid within the same financial year through banking channels, supported by documentary evidence. The CIT(A) relied on judicial precedents, notably the decisions of the Gujarat High Court and the ITAT Surat bench, which held that if the loan is repaid within the same financial year, the addition under section 68 cannot be sustained. The CIT(A) observed that the AO's reliance solely on the non-traceability of the lender's address and non-filing of returns for the relevant years was insufficient to discredit the genuineness of the loan, especially when the transaction was routed through banking channels and confirmed by the assessee's director.The Revenue challenged the CIT(A)'s order before the Appellate Tribunal, reiterating the AO's findings and emphasizing the non-establishment of the lender's identity and creditworthiness. The Revenue argued that the CIT(A) overlooked the crucial fact that the lender company was not traceable and had not filed returns for the years in question, thus failing to satisfy the three parameters under section 68.The assessee's representative countered by highlighting the documentary evidence of receipt and repayment of the loan through banking channels within three months, submission of confirmation letters, and reliance on relevant case laws from the Bombay and Delhi High Courts as well as coordinate benches of the ITAT. The representative emphasized that the genuineness and creditworthiness of the lender had been established to the extent required under section 68.The Tribunal, after considering the rival submissions and the material on record, upheld the CIT(A)'s findings. It noted the following key points: the loan was received and repaid through banking channels within the same financial year; confirmations and bank statements were submitted; the director of the assessee company had confirmed the transactions; and the AO's reliance on the non-traceability of the lender's address and non-filing of returns for the relevant years was insufficient to nullify the genuineness of the loan. The Tribunal also referred to a coordinate bench decision in the case of Signature Global India Pvt. Ltd., where similar facts led to the deletion of additions under section 68 after establishing the identity, creditworthiness, and genuineness of the lenders and repayment of loans within the same year.The Tribunal distinguished the Revenue's case law citations as not applicable to the facts at hand and emphasized that mere suspicion or doubt without concrete evidence is insufficient to make additions under section 68. It reiterated the principle that repayment of the loan within the same financial year negates the benefit of the loan to the assessee, thus precluding the addition as unexplained cash credit.Significant holdings include the following verbatim excerpts from the CIT(A)'s order, which the Tribunal endorsed:'Once repayment of the loan has been established based on the documentary evidence, the credit entries cannot be looked into isolation after ignoring the debit entries despite the debit entries were carried out in the later years. Thus, in the given facts and circumstances, we hold that there is no infirmity in the order of the Ld. CIT-A.''In the instant case, what is evident is that the amount of loan received by the assessee was returned within the same financial year and in most of the cases within 30 days. The said repayment was also verified from the ledger account and the bank statement.''As the loan was repaid in the same financial year, appellant was not the beneficiary of that loan.'Core principles established reaffirm the settled legal position that for additions under section 68, the assessee must prove the identity, creditworthiness, and genuineness of the lender and the transaction. However, if the loan amount is repaid within the same financial year, the transaction cannot be treated as unexplained cash credit since the assessee does not retain any benefit from the loan. The mere non-traceability of the lender's office or non-filing of returns for the relevant years, without more, does not suffice to disprove the genuineness of the transaction if supported by banking channel evidence and confirmations.In conclusion, the Tribunal upheld the deletion of the addition of Rs. 1,65,10,000/- under section 68, affirming that the assessee had satisfactorily established the identity, creditworthiness, and genuineness of the loan transaction and that the repayment within the same financial year precluded the addition as unexplained cash credit. The appeal filed by the Revenue was accordingly dismissed.