Facts of the Case

The assessee, Mirabelle Tradecomm Private Limited, filed its return of income for Assessment Year 2018-19 on 30.10.2018 declaring total income of ₹1,26,500. The assessee is engaged in the business of investment in shares and securities and providing short-term loans and advances. Based on information flagged through the Insight Portal under the “High Risk Transaction” category, the Assessing Officer alleged that the assessee had entered into bogus loan transactions with a paper company, namely M/s Dumpy Suppliers Pvt. Ltd. Proceedings under Section 148A(b) were initiated and thereafter notice under Section 148 was issued on 21.03.2022. During assessment proceedings, the Assessing Officer noted that the assessee had received ₹8,00,000 as fresh loan during FY 2017-18 and treated the same as unexplained cash credit under Section 68, taxing it under Section 115BBE. The total income was assessed at ₹9,26,500. The addition was confirmed by the CIT(A), NFAC, leading to the appeal before the Tribunal.

Issues Involved

Whether unsecured loan of ₹8,00,000 received from M/s Dumpy Suppliers Pvt. Ltd. could be treated as unexplained cash credit under Section 68 when the loan was fully repaid during the same financial year, whether repayment of loan negates the allegation of bogus accommodation entry, and whether addition under Section 68 read with Section 115BBE was sustainable in law.

Petitioner’s Arguments

The assessee contended that it had received an unsecured loan of ₹15,00,000 during FY 2017-18, which was fully repaid on 26.03.2018, thereby squaring off the transaction within the same financial year. It was argued that out of the transaction flow, the alleged unexplained amount of ₹8,00,000 represented temporary loan outstanding which was also repaid before year-end. The assessee produced documentary evidence of repayment, including bank statements, and relied on the jurisdictional Calcutta High Court decision in PCIT vs Rahul Premier India Agency Pvt. Ltd., wherein it was held that loans duly supported by evidence and repaid cannot be treated as unexplained cash credits.

Respondent’s Arguments

The Revenue supported the orders of the Assessing Officer and the CIT(A) and contended that the assessee failed to satisfactorily explain the nature and source of the loan received from an entity allegedly identified as a shell company involved in providing accommodation entries.

Court Order / Findings

The ITAT Kolkata observed that it was an admitted fact that the assessee had availed a loan of ₹15,00,000 during FY 2017-18 and had repaid the same on 26.03.2018, thereby squaring off the transaction within the same year. The Tribunal noted that the balance amount of ₹8,00,000 represented temporary outstanding which was also repaid by the assessee within the same financial year. Relying on the binding judgment of the Calcutta High Court in PCIT vs Rahul Premier India Agency Pvt. Ltd., the Tribunal held that where the assessee has furnished evidence of loan transactions and repayment thereof, addition under Section 68 is not warranted. Accordingly, the addition of ₹8,00,000 made under Section 68 and taxed under Section 115BBE was held to be unsustainable.

Important Clarification

The Tribunal clarified that unsecured loans which are fully repaid within the same financial year, supported by documentary evidence, cannot be treated as unexplained cash credits merely on the basis of allegations of accommodation entries. Once repayment and transaction trail are established, the provisions of Section 68 cannot be mechanically invoked.

Final Outcome

The appeal filed by the assessee was allowed. The addition of ₹8,00,000 made under Section 68 of the Income-tax Act and taxed under Section 115BBE for Assessment Year 2018-19 was directed to be deleted in full.

Source Link- https://itat.gov.in/public/files/upload/1767263466-9ayRtd-1-TO.pdf

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