ITO Vs Seven Rings Education Pvt. Ltd. (ITAT Mumbai)
Mumbai ITAT: Repayment of Loan in Same Year Does Not, by Itself, Establish Genuineness Under Section 68
The Mumbai ITAT allowed the Revenue’s appeal and restored an addition of ₹25.43 crore under Section 68, holding that mere repayment of the amount in the same financial year is not sufficient to establish the genuineness of a loan transaction. The assessee must independently establish the identity, creditworthiness of the lender, and genuineness of the transaction.
The assessee-company had received ₹25.43 crore from M/s. Tulsiyat Tek Pvt. Ltd., placed the funds in short-term bank deposits, and repaid ₹25.74 crore to the lender on maturity during the same financial year. The CIT(A) deleted the addition primarily on the ground that the lender was an identifiable corporate entity and the loan had been repaid through banking channels in the same year.
The Tribunal observed that while the identity of the lender stood established, there was no material on record to demonstrate its creditworthiness to advance more than ₹25 crore. More importantly, the assessee failed to explain the object or commercial purpose of the advance. The funds were immediately invested in short-term deposits and, after maturity, returned to the lender with a small mark-up, without any evidence of a business purpose behind the transaction.
Rejecting the CIT(A)’s reasoning, the Tribunal held that repayment of the amount in the same financial year, though a relevant circumstance, cannot by itself establish the genuineness of the transaction. In the absence of evidence regarding the creditworthiness of the lender and the commercial rationale for advancing such a substantial amount, the requirements of Section 68 remained unfulfilled. The explanation regarding seizure of records by the Economic Offences Wing and the subsequent arrest of the director was also found insufficient to justify the failure to substantiate the transaction.
Accordingly, the Tribunal set aside the order of the CIT(A) and restored the addition of ₹25.43 crore under Section 68, allowing the Revenue’s appeal.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
