PCIT Vs Sperry Plast Ltd. (Delhi High Court)
The Delhi High Court dismissed the Revenue’s appeal under Section 260A of the Income Tax Act, 1961, affirming the Income Tax Appellate Tribunal decision that deleted an addition made under Section 68. The appeal challenged the Tribunal’s order dated 04.06.2025 allowing the assessee’s appeal and deleting additions relating to unsecured loans.
During remand proceedings, the Assessing Officer (AO) independently issued notices to the two loan creditors, which were duly served and responded to. For one creditor, the AO questioned creditworthiness on the basis of low reserves, surplus, and meagre income. The Tribunal held that creditworthiness under Section 68 is not confined to current-year income alone; it may stem from overall net worth or other sources. The creditor’s balance sheets reflected substantial sources of funds as on relevant dates. The assessee had taken a ₹2 crore loan on 24.05.2016, repaying ₹1.85 crore within two days and the remaining ₹15 lakh within a month.
Regarding the second creditor, the assessee furnished confirmations, income-tax acknowledgements, audited financials, and bank statements. The AO did not dispute the creditor’s identity or creditworthiness and only questioned genuineness. The creditor responded to notices confirming the transaction and submitted documents. Balance sheets showed substantial net worth. The Tribunal found that identity, creditworthiness, and genuineness were established: the creditors were existing income-tax assessees with bank accounts; transactions occurred through account payee cheques; and repayments were via banking channels.
