Viking Technology & Trade Pvt. Ltd. Vs DCIT (ITAT Mumbai)
Opening loan balances cannot be taxed again u/s 68 – Mumbai ITAT sends bogus loan addition back for fresh verification
In a significant ruling, the Mumbai ITAT held that opening balances of old unsecured loans cannot automatically be taxed u/s 68 in a subsequent year merely because the assessee failed to initially furnish complete supporting documents during reassessment proceedings. The Tribunal restored the matter back to the AO for fresh verification after admitting crucial additional evidence.
The reassessment proceedings were initiated on the basis of information received during a search and seizure action alleging that the assessee company was a beneficiary of bogus accommodation entry loans. The AO treated unsecured loans aggregating to ₹1.20 crore received from four parties as unexplained cash credits u/s 68 and made addition accordingly.
The AO observed that the assessee failed to establish the genuineness, creditworthiness, and supporting banking trail of the lenders. In particular, the department alleged absence of formal loan agreements, bank statements, cash flow statements and income-tax records of certain lenders. Accordingly, the entire unsecured loan amount was treated as unexplained cash credit.
Before the Tribunal, however, the assessee raised a crucial legal contention that no fresh loan was actually received during the relevant assessment year. It was pointed out that the very ledger extracts reproduced in the assessment order showed that the opening and closing balances were identical for all four parties, thereby proving that the amounts represented merely brought-forward balances from earlier years.
To substantiate the contention, the assessee produced additional evidence including ledger accounts from earlier years and bank statements demonstrating that the loans had originally been received in preceding years and no fresh credit entries arose during the relevant year.
The ITAT observed that section 68 applies only where a sum is “found credited” in the books during the relevant previous year. Therefore, the crucial factual issue requiring examination was whether any fresh loan entry had actually arisen in the year under consideration.
Since these documents and contentions were raised for the first time before the Tribunal and had not been examined by the lower authorities, the ITAT admitted the additional evidence and restored the matter back to the AO for de novo adjudication.
Importantly, the Tribunal directed that if upon verification it is found that the loans merely represented opening balances and no fresh credits were received during the year, then the AO shall delete the addition u/s 68.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
