No additions can be made due to unsecured loans if the appraised proves authenticity: ITAT
The Income Tax Appeals Tribunal (ITAT), Chennai Bench, ruled that the addition under unsecured loans cannot be made if the appraised proves the authenticity of the transaction.
The assessed company, M / s. KPManish Global Ingredients Pvt. Ltd. is engaged in the trade of drugs, chemical ingredients, etc. filed his tax return for the 2009-10 tax year stating the total income. The case was examined and during the appraisal process the appraiser noticed that the appraised had received an unsecured loan in the amount of Rs 990 5 6 567 / – from several people . Therefore, he asked the assessed person to file the necessary information, including the name and address of the people with whom unsecured loans have been taken. The appraiser then sent u / s.133 (6) letters to everyone requesting information to confirm transactions with the appraised, for which the parties filed various details requested by the appraiser, including letters confirmation to confirm loan transactions with the appraised.
The appraisal officer on reading the confirmation received from the parties noticed that the unsecured loans were received from Mr. Umed Mehta and his floating concerns are questionable as Mr. Umed Mehta said during an investigation that the whole transaction related to M /s.Kawarlal group was only accommodation entries. The Assessing Officer, after having analyzed all of Mr. Umed Mehta’s transactions, noted that the transactions involved a circulation of funds between the companies of the group.
Therefore, the AO was of the opinion that the unsecured loans in the books of account were nothing more than a device adopted to introduce his own unexplained money into the account. The Assessment Officer further observed that simply because the disputed transactions were channeled through banking channels, they cannot be considered genuine. As a result, he considered that entire transactions routed through various company accounts are fictitious transactions and, therefore, made additions to the unsecured loans received from three companies owned by Mr. Umed Mehta u / s.68 of the Income Tax Act, 1961.
The assessor aggrieved by the order of the AO appealed to the CIT (A), in which he ruled that the payment by check of the beneficiary of the account is not sufficient to establish the authenticity of the transactions. What is relevant to see is that the transactions have passed the test of authenticity in a real sense, which means that the appraised must prove without doubt the nature of the credits and the source of those credits. In this case, it is accepted that the appraised channeled its unrecorded income in the form of unsecured loans through various group companies, which is only a fictitious transaction.
CATBanusekar, on behalf of the person appraised, insisted that CIT (A) erred in confirming the additions to the unsecured loan received from M / s. CKExports, M / s. Mehta Motors & General Finance Company and M / s. Swastic Trading Corporation, without appreciating the fact that unsecured loans are genuine, which is supported by the necessary evidence.
The coram of the judicial member V.Durga Rao and of the accountant member G. Manjunatha, while annulling the order of the CIT (A), considered that the person assessed had fulfilled his caste of charge. 68 of the Act to prove unsecured loans received from M / sCKExports, M / s. Mehta Motors & General Finance Company and M / s. Swastic trading company. The appraisal agent as well as the CIT (A) learned without appreciating the evidence filed by the appraised simply made additions on the suspicious ground that the said sum was undisclosed income of the appraised.
Therefore, the ITAT ordered the AO to remove the additions to the unsecured loans received from three entities.
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