Facts of the Case

The Revenue filed an appeal under Section 260A of the Income Tax Act, 1961 challenging the order dated 13.04.2018 of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2013-14.

The respondent-assessee, engaged in civil construction and real estate development, filed its return declaring a loss of ₹5.30 crore and paid tax under Section 115JB on book profits. During scrutiny assessment under Section 143(3), the Assessing Officer made additions including:

  • ₹89,37,613 on account of sundry creditors (including Transearch Consultants Pvt. Ltd. — TCPL)
  • ₹5 crore on account of unsecured loans from Maple Technology Ltd. (MTL) and Marigold Overseas Ltd. (MOL)

Issues Involved

  1. Whether additions under Section 68 could be sustained for sundry creditors and unsecured loans.
  2. Whether the assessee had discharged the burden of proving identity, creditworthiness, and genuineness of transactions.
  3. Whether the assessee can be required to prove the “source of source.”

Petitioner’s (Revenue’s) Arguments

The Revenue argued that the assessee failed to prove the genuineness of ₹18 lakh outstanding in the account of TCPL and failed to satisfactorily explain unsecured loans of ₹5 crore from MTL and MOL.

It contended that the ITAT overlooked deficiencies in evidence and that the creditors lacked genuine business activity, rendering the transactions suspicious.

Respondent’s (Assessee’s) Arguments

The assessee submitted that the TCPL account was a running account with substantial transactions, supported by ledger records showing credits and debits through banking channels. The closing balance was subsequently written off and offered to tax in the next year, making any addition in the current year a case of double taxation.

Regarding the loans, the assessee produced confirmations, bank statements, income-tax returns, and financial statements of the lenders. It was argued that the creditors had directly confirmed the loans to the Assessing Officer and that all transactions were routed through banking channels.

Court Order / Findings

On Sundry Creditor (₹18 lakh — TCPL):
The Court noted that the ITAT found a running account with substantial movement, including credits of ₹33 lakh and debits of ₹15 lakh, leaving a closing balance of ₹18 lakh. The amount was written off in the subsequent year and offered to tax, making addition in the assessment year under appeal unjustified and potentially a double addition.

On Unsecured Loans (₹5 crore — MTL & MOL)

  • Confirmations, bank statements, audited accounts, and income-tax returns were furnished.
  • Transactions occurred through banking channels without cash deposits prior to lending.
  • The creditors themselves confirmed the loans in response to notices under Sections 133(6) and 131.
  • Interest was paid with TDS deduction, which the Assessing Officer accepted.

Important Clarification

  • Once identity, creditworthiness, and genuineness are established, additions cannot be sustained.
  • Transactions through banking channels supported by documentary evidence carry significant probative value.
  • An assessee is not required to prove the source of funds of the creditor.
  • Additions leading to double taxation of the same amount are impermissible.

Link to download the order -  https://www.mytaxexpert.co.in/uploads/1772178550_THEPR.COMMISSIONEROFINCOMETAX9VsMSTOPLINEBUILDTECHPVT.LTD..pdf  

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