Deluxe Recycling India Private Limited Vs ITO (ITAT Mumbai)
Low Returned Income Cannot Sink a Loan Without Examining the Fund Trail—ITAT Admits Repayment Evidence &; Restores ₹1.30 Crore Addition u/s 68
The controversy
The assessee, Deluxe Recycling India Private Limited, was engaged in manufacturing eco-friendly particle boards. Its return for AY 2017-18 was selected for limited scrutiny under CASS. During assessment, the AO noticed that the assessee had received an unsecured loan of ₹1.30 crore from Mrs. Nisha J. Savla, sister of one of its directors.
To establish the loan transaction, the assessee furnished the creditor’s confirmation, return of income, bank statement & ledger account. It also explained that the creditor had arranged the funds from her husband, brother, mother-in-law, HUF & sale of shares.
The AO, however, observed that Mrs. Nisha J. Savla had returned an income of only ₹2,24,666 and, therefore, lacked the financial capacity to advance ₹1.30 crore. According to the AO, confirmations and evidence establishing the creditworthiness of the persons who had provided funds to her were not satisfactorily produced. The entire loan was consequently treated as an unexplained cash credit u/s 68, taxable at 60% u/s 115BBE, besides initiation of penalty proceedings u/s 271AAC(1).
Family funding trail questioned
