INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Receipt of unsecured loan - Assessee proved identity, creditworthiness and genuineness

AO treated unsecured loan received by assessee as unexplained credit under section 68 on the ground that modus operandi adopted by the assessee was typical and prevalent in the part of the country where black-money was being routed under the guise of unsecured loan and mere filing of the PAN details, balance-sheet could not absolve the assessee from responsibilities of proving the transaction which were in the nature of tax evasion by money laundering. Held: Assessee furnished to establish the identity of the lender, assessee enclosed the copy of their PAN card, income tax acknowledgement, bank statement, certificate of incorporation, master data from the register of companies and proof to show that notice under section 133(6) was duly served on the lender. As regards creditworthiness, assessee enclosed the annual account of the lender and the audited balance-sheet as on 31-3-2015 to show the net worth of the lender at Rs. 25.37 crores. Further, assessee pointed out that reply was received from the lender to the notice issued by AO under section 133(6) which was also valid proof of identity and genuinity of the lender company. Further assessee availed loans during peak season of business activity and after the season was over, the loan was repaid along with interest after deducting taxes on source. Thus, assessee has genuineness of the transaction was proved. AO brushed aside these documents and in a very casual manner stated that mere filing PAN details, balance sheet did not absolve the assessee from responsibility of proving the nature of transaction. There was no discussion by AO on the correctness of stand taken by assessee. Thus, going by records placed by the assessee, it could be safely held that assessee discharged his initial burden and the burden shifted on the AO to enquire further into the matter which he failed to do. In more than one place, AO used the expression 'money laundering'. Such usage to be uncalled for as the allegations of money laundering is a very serious allegations and the effect of a case of money laundering under the relevant Act is markedly different. Accordingly, addition made by AO was not sustainable.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16

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