Facts of the Case

The assessee, Value Plus Retail Private Limited, filed its return of income for Assessment Year 2012-13 on 28.09.2013 declaring total income of ₹1,88,54,010. During the year, the assessee had raised unsecured loans aggregating to ₹3,95,80,391 from twenty related parties. The case was selected for scrutiny and statutory notices under Sections 143(2) and 142(1) were issued. In response, the assessee furnished confirmations, copies of income-tax returns and bank statements of all loan creditors and also demonstrated repayment of the loans in subsequent years. The Assessing Officer, however, treated the loans as unexplained cash credits and made an addition under Section 68, along with consequential disallowance of interest. The CIT(A) confirmed the additions. Aggrieved, the assessee preferred an appeal before the Tribunal.

Issues Involved

Whether unsecured loans received from related parties could be treated as unexplained cash credits under Section 68 despite submission of confirmations, bank statements and income-tax returns, whether the assessee had discharged the onus of proving identity, creditworthiness and genuineness of the transactions, whether consequential disallowance of interest was sustainable, and whether disallowance under Section 40A(ia) was justified when TDS had been deposited before the due date of filing the return.

Petitioner’s Arguments

The assessee contended that all loan creditors were identifiable related parties having sufficient sources of income, primarily salary income, and that complete documentary evidence including confirmations, ITRs and bank statements had been furnished before the Assessing Officer as well as the CIT(A). It was submitted that the loans were routed through banking channels and were repaid in subsequent years, clearly establishing genuineness of the transactions. Reliance was placed on several jurisdictional High Court decisions holding that once identity, creditworthiness and genuineness are established, no addition under Section 68 is permissible.

Respondent’s Arguments

The Revenue supported the orders of the lower authorities and contended that the assessee had failed to satisfactorily explain the source of the unsecured loans, justifying the addition under Section 68 and the consequential disallowance of interest.

Court Order / Findings

The ITAT Kolkata held that the assessee had duly discharged the onus cast upon it under Section 68 by furnishing confirmations, income-tax returns and bank statements of all loan creditors, who were related parties with identifiable sources of income. The Tribunal noted that the loans were repaid in subsequent financial years and that the authorities below themselves acknowledged the salary income of the creditors. Relying on binding decisions of the jurisdictional Calcutta High Court, including PCIT vs Rahul Premier India Agency Pvt. Ltd., PCIT vs Narayan Tradecom Pvt. Ltd., PCIT vs Alom Extrusions Ltd., PCIT vs Edmond Finvest Pvt. Ltd. and PCIT vs Parwati Lakh Udyog, the Tribunal held that the addition under Section 68 was unsustainable and directed deletion of the same. Consequently, the disallowance of interest on such loans was also directed to be deleted. With respect to disallowance under Section 40A(ia), the Tribunal restored the matter to the file of the Assessing Officer for verification of evidence regarding deposit of TDS before the due date of filing the return.

Important Clarification

The Tribunal clarified that where unsecured loans are supported by complete documentary evidence establishing identity, creditworthiness and genuineness, mere suspicion cannot justify an addition under Section 68. Repayment of loans in subsequent years further strengthens the assessee’s case. Disallowance under Section 40A(ia) requires factual verification regarding compliance with TDS provisions and cannot be sustained mechanically.

Final Outcome

The appeal filed by the assessee was partly allowed. The addition of ₹3,95,80,391 made under Section 68 and the consequential disallowance of interest were deleted in full, while the issue relating to disallowance under Section 40A(ia) was restored to the file of the Assessing Officer for fresh verification and adjudication.

Source Link- https://itat.gov.in/public/files/upload/1768297970-yD3xSQ-1-TO.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.