2020 (2) TMI 651 - AT - Income Tax

Addition u/s 68 on account of unsecured loans from directors - HELD THAT - The assessee did not furnish the source of fund available with her as she is not maintaining regular books of account. The ld CIT(A) also noted that her return of income was only ₹ 251500/- and therefore, after meeting the household expenses, she could not have saved above sum available with her. Thus, the creditworthiness of the above loan was not proved. Similarly, the facts shows that loan from Mr. Neeraj Handa was also having the identical facts, in view of this the ld CIT(A) confirmed the above additions. On carefully perusal of the orders of the lower authorities, it is apparent that assessee has failed to prove the creditworthiness of the above loans. Assessee has failed to show creditworthiness of both the lenders. Hence, we do not find any infirmity in the orders of the lower authorities in sustaining the above addition u/s 68 - Decided in favour of revenue

Summary

Issues:
1. Addition of unsecured loans under section 68
2. Failure to prove creditworthiness of lenders

Analysis:

Issue 1: Addition of unsecured loans under section 68
The appeal was filed against the order of the ld CIT(A) for the Assessment Year 2015-16. The assessee contended that the ld AO erred in making an addition of ?216,500 under section 68 on account of unsecured loans from directors, arguing that the loans were genuine. The assessee emphasized that the identity and creditworthiness of the depositors were established, as evidenced by the deposits made through account payee cheques and shown in their statements of affairs. However, the ld CIT(A) upheld the addition, stating that the provision of section 68 applied to the case. The tribunal noted that the loans were received from family members who were also directors of the company. The ld AO found discrepancies in the cash deposits made by the lenders before issuing the cheques to the assessee. Despite the submission of income tax returns and balance sheets, the explanation provided by the assessee was rejected, leading to the addition under section 68.

Issue 2: Failure to prove creditworthiness of lenders
The tribunal observed that the cash deposits made by the lenders before issuing the cheques to the assessee raised doubts about the creditworthiness of the loans. In one instance, cash deposits were made by a lender who had a low declared income, making it unlikely for her to have saved the amount she lent. The tribunal found similar discrepancies in the case of the other lender. The ld CIT(A) concluded that the creditworthiness of the loans was not established due to the lack of evidence regarding the sources of funds available with the lenders. Consequently, the tribunal upheld the decision of the lower authorities to sustain the addition under section 68. Despite the submissions made by the assessee, including statements of affairs and explanations regarding the source of funds, the tribunal found no infirmity in the orders of the lower authorities and dismissed the appeal on all grounds.

In conclusion, the tribunal dismissed the appeal of the assessee, upholding the addition of unsecured loans under section 68 due to the failure to prove the creditworthiness of the lenders.