By Rasheela Basheer – On May 19, 2022 4:23 pm
The Income Tax Appellate Tribunal (ITAT), Chennai bench has held that the loan taken from close relatives and friends cannot be treated as unexplained cash credit in order to attract section 68.
A division of the Tribunal comprising Shri Mahavir Singh, Vice President, and Shri G. Manjunatha, Accountant Member, while deleting the addition, observed that the Assessing Officer does not have a case that the assessee had taken loans from certain unknown people whose identity is in doubtful.
The assessee is an individual carrying on business and filed his return of income for the AY 2016-17 on 14.07.2017 admitting a total income of Rs.30,43,030/-. The assessee was called upon to explain the nature and source of the loan taken from the above persons. In response, the assessee had submitted confirmation letters from the loan creditors along with relevant bank statements to show that the amounts were received through the banking channel. The assessee had also filed their ITR acknowledgment copies to prove that all loan creditors are Income Taxpayers. The Assessing Officer rejected the documents and made an addition by observing that although the assessee proved the identity of the creditors and genuineness of transactions, but failed to prove the creditworthiness of the parties.
The Tribunal noted that “the AO has doubted creditworthiness of the parties mainly on the basis of ITRs filed by them for the relevant assessment years. According to the AO, they had declared less income or loss for the relevant assessment years, which is insufficient to explain the amount of loan given to them. Except this, the AO has never doubted the identity of the parties and genuineness of transactions.”
Concluding the order in favor of the assessee, the Tribunal held that “In this case, the assessee has filed all details to prove the identity of the loan creditors genuineness of transactions and creditworthiness of the parties. In fact, the loans are taken from close family members and friends. It is not a case of the AO that the assessee had taken loans from certain unknown people whose identity is doubtful. Therefore, we are of the considered view that, the AO is completely erred in making additions towards the loan taken from above parties as unexplained credit u/s.68 of the Act.”
Mr.M.Karunakaran, Advocate appeared for the assessee.To Read the full text of the Order CLICK HERE