ITAT held that loan repayments cannot be treated as unexplained cash credits under Section 68.
The Income Tax Appellate Tribunal (ITAT) Mumbai Bench dismissed the Revenue’s appeal and upheld the deletion of ₹12.69 crore addition, also held that repayment of a loan cannot be treated as a fresh unexplained credit under Section 68 of the Income Tax Act1961.
The assessee A P Trading Co. was subjected to a search under Section 132 and subsequently assessed under Section 143(3). The AO, while conducting the assessment had considered the unsecured loans for an amount of ₹12.69 crore received from Prathna Pvt. Ltd. as unexplained cash credits under Section 68.
According to the AO, the assessee had failed to prove that it had the capacity to repay the amount along with the credibility of the transaction.Further it was noted that the lender had meager income and negative net worth and did not comply fully with the inquiry on the source of income.
However, It was argued by the assessee that the AO was incorrect in its basic approach to consider the amount as new loans since the amount of ₹12.69 crore pertained to repayment of previous loans only.
The Tribunal comprising Om Prakash Kant (Accountant Member) and Pawan Singh (Judicial Member) observed that the AO had made addition on the basis of a factual foundation.It highlighted that the amount in issue related to repayment of the loan in the previous year which cannot be considered as new credit in the current year.
The Bench stated that the repayment of the loan is not covered under Section 68. Further, it was held that the lender had already been decided in favor of the assessee in the previous year and no distinct facts had been brought before the Court by the Department.
Accordingly, the Bench allowed the order of the CIT(A) and accordingly deleted the addition.
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