Rekha Corporation Private Limited Vs DCIT (ITAT Hyderabad)
Hyderabad ITAT Deletes ₹2.38 Crore Section 68 Loan Addition: Low Income or Prior Cash Deposits in Lenders’ Accounts Cannot Substitute for Revenue’s Investigation
Summary: The assessee company, engaged in the business of trading in pesticides, filed its return for AY 2013-14 declaring income of Rs.1,49,466/-. In assessment proceedings, the Assessing Officer disallowed Rs.1,00,268/- towards employees’ contribution to Provident Fund and ESI under Section 36(1)(va), holding that the payments were made beyond the due dates prescribed under the respective welfare enactments. The AO also made an addition of Rs.2,38,48,000/- under Section 68 in respect of unsecured loans received from various individuals and corporate entities, principally relying upon comparatively low returned income of certain lenders, cash deposits preceding payments through banking channels and non-furnishing of some documents. The CIT(A) substantially upheld both additions.
On appeal, the Tribunal examined the Section 68 addition with reference to the documentary evidence furnished by the assessee, including confirmations, PAN details, income-tax particulars, bank statements and ledger accounts. It found that the identity of the lenders was substantially established, the loans were received through banking channels, and several lender accounts reflected continuing receipts and repayments. The Tribunal held that low returned income, cash deposits in lenders’ accounts or deficiencies in documentation could justify further inquiry but, in the absence of such investigation, could not by themselves sustain the addition. It observed that the AO had not adequately used the powers under Sections 131 and 133(6) or otherwise investigated the source of deposits and had proceeded substantially on suspicion and presumptions. Following the principles discussed in CIT v. Orissa Corporation (P.) Ltd., Nemi Chand Kothari v. CIT, Deputy CIT v. Rohini Builders and Gaurav Triyugi Singh v. ITO, the Tribunal held that the assessee had discharged the initial burden under Section 68 and the Revenue had failed to dislodge the evidence through proper inquiry. It therefore deleted the addition of Rs.2,38,48,000/- and allowed Grounds Nos. 5 to 8.
