2020 (11) TMI 223 - AT - Income Tax

Unsecured loan received from the directors - Additions u/s 68 - HELD THAT - In respect of the loans taken from the Directors of the Company, the assessee has submitted the relevant documentary evidences to establish the genuineness, creditworthiness and capacity of these loanee. Section 68 is applicable in the case where the assessee offers no explanation about the nature and source therewith or the explanation offered by him is not in the opinion of the AO satisfactory in respect of the sum so credited which may be charged to income tax. In the present case, the AO failed to record his opinion and satisfaction as to why the sum credited in the books of account of the assessee is coming under the purview of Section 68. The explanation offered by the assessee that the bank account and the capacity of the creditor who have given the loan amount was proved through ITR details of the said parties along with bank statements and confirmations which clearly shows the proper balance in their respective bank accounts and their capacity to loan the amount to any other party as well. Thus, all these factor were ignored by the CIT(A) as well as the AO - CIT (A) was not right in dismissing the plea of the assessee and sustaining the addition. Hence, appeal of the assessee is allowed.

Summary

Issues Involved:
Appeal against addition of unsecured loan from directors for assessment year 2012-13.

Detailed Analysis:

1. Addition of Unsecured Loan:
The appellant challenged the addition of ?68,72,311 as unsecured loans received from the directors of the company. The appellant contended that the loans were genuine, supported by confirmations, PAN copies, bank statements, and ledger accounts. The appellant argued that the loans were granted through banking channels, and the identity of the creditors was not disputed. The appellant emphasized that no adverse material suggested the funds originated from the company's coffers. The appellant also highlighted that non-compliance with a notice under section 133(6) does not warrant adverse inferences. The appellant further argued that once the source of the loans was disclosed, no addition should be made, citing relevant case laws. The appellant urged for the deletion of the addition and interest levied.

2. Assessment Proceedings:
The appellant, engaged in manufacturing unsaturated polymers, declared a loss in the return for the assessment year 2012-13. The Assessing Officer later assessed an income of ?67,07,061, adding ?44,74,311 on account of unsecured loans from the directors. The CIT(A) upheld the addition, leading to the appeal. The appellant contended that no defects were found in the books of accounts during the assessment. The appellant argued that the loans were received through the directors' bank accounts, supported by documentary evidence. The appellant highlighted the absence of any evidence contradicting their claims and criticized the Assessing Officer's assumptions. The appellant cited relevant court decisions to support their case.

3. Judicial Analysis:
Upon review, the Tribunal found that the appellant had provided documentary evidence establishing the genuineness and creditworthiness of the loans received from the directors. Section 68 applied when the assessee failed to explain the nature and source of a sum credited. However, in this case, the Assessing Officer did not justify why the loans fell under Section 68. The Tribunal noted that the appellant had proven the capacity of the directors to provide the loans through ITR details and bank statements. The Tribunal criticized the CIT(A) and the Assessing Officer for ignoring crucial evidence and ruled in favor of the appellant, allowing the appeal.

In conclusion, the Tribunal allowed the appeal, emphasizing the failure of the authorities to consider the documentary evidence provided by the appellant regarding the unsecured loans received from the directors. The Tribunal found the addition unjustified and unsustainable in law, highlighting the importance of establishing the genuineness and creditworthiness of transactions in such cases.