Tax Additions For Unsecured Loans Unsustainable Where Lender Creditworthiness Is Proven: ITAT Mumbai

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) on 23 January held that additions under Section 68 of the Income Tax Act relating to unsecured loans are unsustainable where the lenders had been accepted as genuine in earlier assessment years and the transactions were supported by proper banking records.

Section 68 of the Income Tax Act allows the tax authorities to treat sums credited in a taxpayer's books as unexplained income if the identity and creditworthiness of the lender and the genuineness of the transaction are not established.

A Bench of Saktijit Dey, Vice President, and Jagadish, Accountant Member, hearing appeals arising from a search conducted on the Jatia Group, dismissed the Revenue's challenge to the deletion of additions amounting to Rs. 14.61 crore.

It held:

“Factual position in the present appeal is identical to AY 2017-18. Like AY 2017-18, in the present case also the assessee had furnished all supporting evidences to establish the identity and creditworthiness of the creditors. The genuineness of transaction also stands established as it has been done through banking channels and the bank statements of the lender companies and the assessee were furnished before the Assessing Officer.”

The taxpayer, Supreme Holdings & Hospitality (India), is a listed real estate company and part of the Jatia Group. During the relevant assessment years, it received unsecured loans which were treated as unexplained cash credits by the Assessing Officer. The additions, aggregating to Rs. 14,61,85,211/-, were based on statements recorded from persons associated with the Jatia Group, alleging circular transactions and misuse of letters of credit.

The Tribunal noted that none of the statements referred to Supreme Holdings or suggested that any accommodation entries had been provided to it. Confirmations, bank statements, income-tax returns, and financial statements of the lenders—Asuti Trading Private Limited and Lloyds Steel Industries Limited—established their identity, creditworthiness, and the genuineness of the loan transactions. The loans were also fully repaid through banking channels.

The Tribunal further observed:

“the loans availed by the assessee have either been repaid within the year or in subsequent years and ultimately the entire loan has been repaid. It is also a fact on record that in case of lender companies though the Assessing Officer was same, however, he has not taken any adverse view regarding loan transaction.”

The Tribunal concluded that the Revenue had failed to show that Supreme Holdings' own money had been routed back as loans, and dismissed all appeals. The cross-objections filed were also dismissed.