Case Law Details
ACIT (OSD) Vs Generica India Ltd. (ITAT Delhi)
Corporate Loan Cannot Be Taxed Under Section 56(2)(x) Without Proof of Non-Repayment; Section 56(2)(x) Addition Deletion Upheld as AO Failed to Establish Impossibility of Loan Repayment: ITAT Delhi.
The Revenue appealed against the order of the CIT(A)/NFAC dated 01.10.2025 for Assessment Year 2022-23, which had deleted an addition of Rs.10.51 crore made by the Assessing Officer under Section 56(2)(x) of the Income-tax Act, 1961. The assessee had filed its return of income on 28.09.2022 declaring total income of Rs.6,96,03,120. The case was selected for scrutiny under CASS on the issue of a large increase in unsecured loans. During assessment under Sections 143(3) read with 144B, the Assessing Officer treated an unsecured corporate loan of Rs.10.51 crore received from an associated company as money received without consideration and added the amount under Section 56(2)(x).
The Revenue challenged the deletion of the addition, contending that the assessee had failed to establish the genuineness and legal validity of the unsecured loan, had not produced a valid contemporaneous Board Resolution, had delayed filing Form MGT-14, and had violated provisions of the Companies Act. It also contended that the loan was without consideration and that the CIT(A) had failed to consider judicial precedents and the applicability of Section 68.
The CIT(A) recorded that the assessee had obtained the loan from its associated company, M/s Veritas Life Sciences Ltd., to meet working capital requirements. According to the CIT(A), the Assessing Officer’s principal objection was that the company had not complied with Section 117 read with Section 179(3) of the Companies Act, 2013 by not passing and filing the required Board Resolution in time, and therefore the loan transaction was not genuine or legally valid. The assessee submitted that the lender had sufficient funds, the loan was routed through banking channels, recorded in the books of both companies, and that Form MGT-14 and other filings had been made. The assessee further argued that Section 56(2)(x) applies only where money is received without consideration and that a loan repayable on demand carries consideration in the form of the obligation to repay. Reliance was also placed on judicial decisions cited before the CIT(A).
The CIT(A) observed that a loan transaction carries consideration in the form of repayment and stated that unless it is proved that repayment never happened, Section 56(2)(x) would not apply to loans. The CIT(A) further held that the Assessing Officer had relied solely on delayed filing of Form MGT-14 and that non-compliance with the Companies Act did not by itself permit invocation of Section 56(2)(x). The CIT(A) also observed that penalties or fees relating to delayed MCA compliance fall under the Companies Act and directed the Assessing Officer to verify whether the loan had been repaid while giving effect to the appellate order.
The Tribunal noted that the Assessing Officer had not questioned the identity of the lender, the genuineness of the transaction, or the creditworthiness of the lender. It observed that the addition had been made only on the basis of alleged non-compliance with Section 117 read with Section 179(3) of the Companies Act, 2013. The Tribunal concurred with the CIT(A) that Section 56(2)(x) could not apply to the loan received by the assessee in the facts of the case, as the Assessing Officer had not established that repayment of the loan had not happened or would not happen. Finding no reason to interfere with the CIT(A)’s decision, the Tribunal dismissed the Revenue’s appeal.
FULL TEXT OF THE ORDER OF ITAT DELHI
This captioned appeal has been filed by the assessee against the order of the CIT(A)/NFAC Delhi dated 01.10.2025 arising from the assessment order under Section 143(3) read with section 144B of the Income-Tax Act, 1961 (hereinafter referred as ‘the Act’) dated 22.03.2024 passed by National Faceless Appeals Centre Delhi for A.Y. 2022-23.
2. Brief facts of the case are that the assessee has filed ITR on 28.09.2022 declaring total income of Rs. 6,96,03,120/-, for the assessment year 2022-23. The case was selected for scrutiny assessment under CASS, accordingly, notice u/s 143(2) of the Act dated 01.06.2023 was issued to Assessee company and served through electronically. The reason and issue of the selection of this case under CASS “Large increase in unsecured loans during the year”. Assessment was completed by the AO and Rs. 10,51,00,000/- is added in the total income of the Assessee company under section 56(2)(x)(a) of the Act for the year under consideration. Aggrieved, assessee was in appeal before the CIT(A)/NFAC who deleted the addition. Aggrieved the Revenue is now in appeal before us with the following grounds:
1. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of 10,51,00,000/-made by the Assessing Officer under section 56(2)(x) of the Income-tax Act, 1961, without properly appreciating that the assessee failed to establish the genuineness and legal validity of the alleged unsecured loan, and that the amount received was, in substance, money received without adequate consideration.
2. That the Ld. CIT(A) has erred in holding that violations of mandatory provisions of the Companies Act, including absence of a contemporaneous Board Resolution and delayed filing of Form MGT-14, have no bearing on the assessment proceedings, whereas such violations directly affect the enforceability, legality, and genuineness of the alleged loan transaction.
3. That the Ld. CIT(A) has failed to appreciate that the assessee did not furnish a valid and contemporaneous Board Resolution or loan authorisation at the time of the transaction, and that all documents subsequently produced were afterthoughts, created only after issuance of the Show Cause Notice by the Assessing Officer.
4. That the Ld. CIT(A) has erred in law and on facts in treating the alleged loan as genuine merely on the basis of subsequent filings and repayments, ignoring the legal position that the genuineness of a transaction must be established at the point of receipt and cannot be inferred from later events.
5. That the Ld CIT(A) has failed to apply the binding ratio laid down by the Hon’ble Supreme Court in the cases of CIT v. Durga Prasad More and Sumati Dayal v. CIТ. when which the mandate authenticity examination of documents of human probabilities and surrounding circumstances is doubtful.
6. That the Ld. CIT(A) has erred in holding that the obligation to repay itself constitutes “consideration,” ignoring the fact that the assessee did not produce any legally enforceable loan agreement or authorising corporate documentation existence of such an to demonstrate obligation at the time of the alleged loan.
7. That mandatory the Ld. procedures CIT(A) has under failed to appreciate that the assessee’s non-compliance with invalid in law, and therefore the Companies Act renders the alleged loan transaction received without consideration the amount received is, in substance and effect, money taxable under section 56(2)(x).
8. That examine the Ld. CIT(A) has erred in holding that the Assessing Officer had no jurisdiction legal compliance violations for of the Companies Act, whereas the AO is duty-bcund to verity under the Income-tax Act.
9. That the Ld. CIT(A) has erred in not exercising powers coterminous with those of the Assessing Officer, despite the assessee’s failure to discharge the primary onus of proving the genuineness of the transaction, contrary to the law laid down by the Hon’ble Supreme Court in PCIT v. NRA Iron & Steel Pvt. Ltd.; and that the Ld. CIT(A) further erred in not considering that the amount was liable to be taxed under section 68 of the Income-tax Act, 1961, even if not taxable under section 56(2) of the Act.
10. That the order of the Ld. CIT(A) is perverse, contrary to material on record, and unsustainable in law, as it accepts self-serving submissions of the assessee without proper appreciation of statutory requirements, factual inconsistencies, and judicial precedents.
11. That the Revenue reserves the right to add, modify, alter, or withdraw any ground of appeal at the time of hearing.
3. The sole and substantive grievance of the Revenue is with regard to the deletion of addition of Rs.10.51 cr. made by the AO under section 56(2)(x) of the Act without properly appreciating that the assessee failed to establish the genuineness and legal validity of the alleged unsecured loan, and that the amount received was in substance money received without adequate consideration. The Learned DR relied on the order of the AO.
4. At the outset, learned Counsel for the assessee submitted that the assessee had taken a corporate loan of Rs.10.51 cr. which has been added under section 56(2)(x) of the Act.
5. We have heard the rival submissions and perused the material available on record. We find that the CIT(A)/NFAC deleted the addition by observing as under:
“5.1 The assessee Generica India Limited is a corporate entity incorporated on 09.05.1999. The company is engaged in the business of trading of medicines and other related products having its office at Sector-A-10, Narela, Delhi 110040. The company Generica India Limited took a loan of Rs 10,51,00,000- during the F.Y.- 2021-22( A.Y. 2022-23) from M/s Veritas Life Sciences Limited having their office at Sector A-10, Narela, Delhi-110040. M/s Veritas life Sciences Ltd. (VLSL) is a group and associated company of Generica India Limited. There is a relationship between these two corporate entities. There was an arrangement that all products of the Group will be supplied through M/s Veritas Life Sciences Ltd and all these group products will be sold by M/s Generica India Ltd through its all over India Sales network. Due to the working capital requirement the appellant company GIL has requested a loan and Veritas Life Sciences Ltd had given loan to GIL as repayable on demand. The appellant GIL filed its return of income on 28.09.2022, declaring a total income of 6.96 crore. The case was selected for scrutiny under CASS for verification of “large increase in unsecured loans during the year”. Further, notices u/s 143(2), 142(1) of the IT Act, 1961, and Show Cause Notices were issued to the appellant during the course of assessment proceedings. In response to the same the appellant submitted its reply during the course of assessment proceedings. Ld. AO found that the appellant company took an unsecured loan of 10.51 crore from its associate M/s Veritas Life Sciences Ltd., without charging interest. Therefore, a show cause notice was issued to the appellant company with proposed addition income of Rs.10,51,00,000/-. In compliance to show cause notice appellant company submitted its reply. The AO has stated in assessment order that “ it is clear that the aforesaid transaction of unsecured loan of Rs 10,51,00,000/- is found illegal and null and void and without consideration. In the instant case, the provision of section 56(2) (x) of the Act is applicable as Assessee company receives, aforesaid sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees. Therefore, in view of the provisions of section 56(2)(x)(a) of the Act, the whole of the aggregate value of such sum of Rs. 10,51,00,000/- received on account of unsecured loan, shall be chargeable to income-tax under the head income from other sources. In view of the above-mentioned fact, the aforesaid sum of Rs. 10,51,00,000/- is added in the total income of the Assessee company under section 56(2)(x)(a) of the Act for the year under consideration”. Thereafter, the AO completed the assessment u/s 143(3) read with section 144B of the Income Tax Act, 1961 on 22.03.2024 assessing the total income of Rs.17,47,03,120/- after making addition of Rs.10,51,00,000/-.
5.2 Aggrieved by the said addition in assessment order dated 22.03.2024; the appellant filed an appeal before CIT (A), NFAC on 06.04.2024. Appellant has filed only one ground of Appeal against the addition of Rs. 10,51,00,000/- u/s 56(2)(x) of the IT Act 1961. Appellant has incorporated his legal and factual arguments in his one Grounds of Appeal itself. AO’s main argument is that appellant company should have passed a resolution before taking loan and this resolution must be filed within the 30 days to the ROC, MCA in the e-form MGT-14. Assessing Officer argued that appellant company has not followed provisions of section 117(g) r.w.s 179(3) of the Company Act, 2013, therefore, the unsecured loan transaction cannot be treated as genuine, legal and valid transaction. Ld. Assessing Officer did not consider Board Resolution dated 21/06/2021 as genuine and said that it is an antedated document. Ld. AO observed that appellant company filed copy of form MGT-14, which is digital signed on 09.03.2024. Ld. AO concluded that aforesaid loan transaction is in violation of corporate Law thus cannot be allowed as legal and acceptable transaction. Ld. AO said that since the impugned loan transaction cannot be treated as valid loan because of violation of corporate law, therefore it deserved to be treated as income u/s 56(2)(X) of the IT Act 1961 and assessed this loan as income u/s 56(2)(x) of the IT Act 1961. While making this addition Ld. AO concluded his argument that aforesaid loan was without “consideration” and the aggregate value of loan exceeds 50,000/-rupees, therefore in view of the provision of section 56(2)(x) of the IT Act, the whole loan amount was added to the income of the appellant.
5.3 During the course of first appellate proceedings before CIT (A), NFAC appellant submitted his written reply along with factual and legal arguments. Appellant’s relevant reply has been reproduced in para 4 of this order. For the sake of brevity appellant’s reply was not repeated here because appellant legal and factual reply has been considered and only crux of the appellant’s argument will be discussed here. The main contention of Appellant was that when the Ld. Assessing Officer was satisfied with the identity, genuineness and creditworthiness of the impugned loan transaction then there cannot be any addition U/S 56(2)(x) of the Income Tax Act 1961. Appellant argued that if Ld. AO was not satisfied with the explanation about the nature and source of the loan then additions can be made under section 68 of the IT Act. Appellant argued that loan was taken from an associated group company Veritas Life Science Ltd and Veritas Life Science Ltd was having sufficient balance of Rs. 31.85 crores with him as on 31.03.2021 as per section 180(1)(c) of the Company Act 2013. Loan was given through banking channel and duly recorded in the books of accounts of both borrower and lender company. Appellant has stated that MGT-14 via SRN no. AA7043208 was duly filed thus complied the provision of the Companies Act 2013 for taking Unsecured Inter Corporate Loans from other body corporate and reported to ROC in DPT-3 within due date via SRN no. F03765997 dated 01.06.2022. Appellant argued that Section 56(2)(x) of the IT Act can be invoked when money received without consideration. Consideration has been defines under Indian Contract Act under section 2(d) of the Indian Contract Act, 1872 as: “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise….”. Appellant said that there is a regular business relation between two Companies as seller and buyer. Appellant is doing business on behalf of Veritas Life Sciences Ltd. Therefore, after taking loan there is an automatic consideration arises to repay the same amount of loan to Veritas Life Sciences Ltd. It is absolutely wrong to consider that a loan which is repayable on demand between two persons is without consideration.
5.4 Further appellant relied on the view of Hon’ble jurisdiction High Court i.e Delhi High Court in the case of CIT v/s Mridu Hari Dalmia (1982) 133 ITR 550 (Delhi) in which Hon’ble Court has stated that “ A transaction of a loan implies an agreement to repay the money that is borrowed. Shri Harihar Lal cited a definition of ‘loan’ from Corpus Juris Secundum. According to this passage a loan of money is defined as “ a contract by which one delivers a sum of money to another and the latter agrees to return at a future time a sum equivalent to that which be borrows”, and again as “ the delivery by one party and the receipt by the other party of a given sum of money on an agreement express or implies, to repay the sum lent with or without interest”. These definitions can be accepted as succinctly summarising or analysing the ingredients of a loan. They are in line with the definitions enunciated by our Supreme Court (vide Lakshmanier & Sons. V. CIT, 1958-34 ITR 10(3) and other cases). They make it clear that a loan involves an enforceable agreement between two parties, one of whom is the lender and the other the borrower. The former lends moneys to the latter. The latter received the sum and promises to repay it by an equivalent amount at a future date with or without interest. From the observation of Hon’ble Delhi High Court it’s very clear that the loan cannot be treated as an income when the same is repayable by the recipient.” Appellant further relied on Hon’ble Mumbai ITAT in the case of Chandrakant H. Shah V/s ITO (2009) 28 SOT 315 and on the P & H High Court in the case of CIT v/s Sharanpal Singh (HUF) 237 CTR 50.
5.5 The main question is can provisions of section 56(2)(x) of the IT Act apply in case of loans received by the appellant. Various Court’s has decided this issue that a loan transaction comes with a consideration of repayment of loan therefore unless until it is proved that repayment was never happened there is no case under section 56(2)(x) of the IT Act for the Ld. Assessing Officer. Further if loan is not genuine and there is a presumption that a matching transaction in cash has been carried out then addition can be made in relevant provision of the Act. Ld. AO has relied on solely one fact of late filing of Form MGT-14 u/s 117 of the Companies Act 2013. In my opinion Ld. AO has no jurisdiction to penalize late filing of Form MGT-14 under companies Act and section 56(2)(x) cannot be invoked solely due to noncompliance under company law Act 2013. If the impugned loan transaction is a bonafide corporate loan transaction then belatedly filing of form MGT-14 before ROC does not give power to invoke rigours of section 56(2)(x) of the IT Act 1961. Penalty and fees can be imposed for the delay of MCA compliances by the corporate law administrator it cannot be levied under Income Tax Act. Therefore, Grounds of Appeal filed by appellant is allowed and Ld. AO is directed to verify whether loan was repaid or not at the time of giving appeal effect of this case.
6. In the result, the appeal is allowed.”
6. We have heard the rival submissions and have perused the materials on record. We find that the assessee Generica India Limited had taken a loan of Rs 10,51,00,000- during the F.Y.- 2021-22( A.Y. 2022-23) from M/s Veritas Life Sciences Limited, a group concern. The AO did not question the identity, genuineness of transaction and creditworthiness of the lender. Instead, the AO invoked the provision of 56(2)(x) of the IT Act 1961 and held that as the assessee did not follow the provisions of section 117(g) r.w.s 179(3) of the Company Act, 2013, therefore, the unsecured loan transaction cannot be treated as genuine, legal and valid transaction.
7. We are of the considered view that in such factual matrix, we concur with the decision of the Ld CIT(A) that the provisions of section 56(2)(x) of the IT Act can not apply in case of loans received by the assessee as the AO has not established that repayment of loan has or will not happen in the case of the assessee. We find no reason to interfere with the decision of the CIT(A). Grounds of Appeal are dismissed.
8. In the result, appeal filed by the Revenue in ITA No.8596/Del/2025 is dismissed.
Order pronounced in the open court on 05.06.2026
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