Adhithiya Gears Private Limited Vs ACIT (Madras High Court)
Summary: The Madras High Court considered an appeal by Adhithiya Gears Private Limited against the order of the Income Tax Appellate Tribunal, Chennai, which had upheld an addition of Rs.4,10,000 under Section 68 of the Income Tax Act, 1961 for Assessment Year 2005-06. The addition represented an unsecured cash loan introduced in the assessee-company’s books by its Managing Director, Mr. M. Balasubramanian.
The assessee explained that the Managing Director had obtained Rs.3,00,000 from Mr. N. Rajagopalan, his paternal uncle, Rs.1,00,000 from Ms. S. Dhanam, a family friend, and contributed Rs.10,000 from his own savings, aggregating to Rs.4,10,000. Three affidavits were placed before the Assessing Authority: one from the Managing Director and one each from the two persons stated to have advanced the amounts. The assessee contended that the Managing Director had routed the loans through himself because direct acceptance of deposits by the company could attract the consequences of Section 58A of the Companies Act, 1956.
The Assessing Officer rejected the explanation. The AO noted that the transaction was in cash and that no banking evidence had been produced to demonstrate the movement of the money. The Managing Director’s return disclosed salary income of only Rs.60,000 and did not mention the loans allegedly obtained from the two persons. The AO therefore concluded that the assessee had failed to establish the genuineness and creditworthiness of the credit and added Rs.4,10,000 under Section 68.
