Section 68 Addition Deleted as Loan Repayment and Bank Proof Confirm Genuine Transaction

The ITAT Kolkata upheld the deletion of addition under section 68 regarding an unsecured loan treated as unexplained cash credit. The loan was partly repaid in FY 2015-16 and FY 2016-17, and was advanced from the lender's FDR maturities, supported by bank statements. The tribunal rejected the Revenue's contention that the lender was a shell company, noting the lender was operational with fixed assets. Following the Gujarat HC ruling in Ambe Tradecorp (P.) Ltd., which held that repayment of loan in current or subsequent years precludes addition under section 68, the appeal was allowed in favor of the assessee.

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ISSUES:

Whether the addition of Rs. 15.05 crores as unexplained cash credit under section 68 of the Income Tax Act is justified in respect of unsecured loan received by the assessee.Whether repayment of the loan during the current or subsequent assessment years negates the addition under section 68.Whether the lender being a shell company without purchases, sales, or fixed assets affects the genuineness of the loan transaction.Whether the commission charged on the transaction can be treated as unexplained expenditure under section 69C of the Act.

RULINGS / HOLDINGS:

The addition of Rs. 15.05 crores under section 68 was not justified as the correct loan amount was Rs. 7.05 crores, supported by bank statements and confirmations; the loan was received from the lender out of encashment of FDRs and not by circuitous fund transfers.Repayment of the loan partly in the current assessment year and partly in the subsequent year negates the addition under section 68, following the principle that "once repayment of the loan has been established based on the documentary evidences, the credit entries cannot be looked into in isolation."The lender company was found to be an operational company with fixed assets, thus negating the argument that it was a shell company; therefore, the genuineness of the loan was upheld.The addition of Rs. 37,62,000/- as unexplained expenditure under section 69C was not sustained in the appellate order and was effectively negated by the CIT(A) and appellate tribunal.

RATIONALE:

The Court applied the provisions of section 68 (unexplained cash credits) and section 69C (unexplained expenditure) of the Income Tax Act, considering documentary evidence such as bank statements, confirmations, and repayment records.The decision relied on precedent from the Hon'ble Gujarat High Court in Ambe Tradecorp (P.) Ltd., which held that repayment of loan established by documentary evidence precludes addition under section 68.The Court distinguished relied-upon decisions that supported additions under section 68 on facts, emphasizing the presence of fixed assets and operational status of the lender company in the instant case.The tribunal exercised discretion to condone delay in filing the appeal, considering facts and circumstances, thereby admitting the appeal for substantive adjudication.

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