INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Receipt of unsecured loan - Assessee furnished affidavit of lender to substantiate loan transaction--No cross-examination or rebuttal by AO as well as appellate authorities

Assessee-company received unsecured loan from its managing director. In order to prove genuineness of loan transaction, assessee furnished affidavits of managing director and two withnesses but without controverting said affidavit by any manner of cross examination, AO rejected the same and held that assessee failed to prove genuineness of unsecured loan and accordingly, made additions udner section 68 which had been upheld by CIT(A) as also by the Tribunal. Assessee challenged this by way of appeal filed before High Court.Held: If findings of facts are perverse, it is not binding on High Court under section 260A as the court is not only concerned with substantial questions of law arising from the orders of Tribunal, but if there are glaring defects in the manner of arriving at findings of facts, then it vitiates the orders of AO as well as appellate authorities. Explanation given by assessee company for unsecured loan in question was in the form of affidavit of Managing Director of assessee company, i.e., the lender, in the absence of any cross-examination or rebuttal or controverting of the affidavits, AO could not have concluded that assessee failed to adduce evidence to prove identity and creditworthiness of creditor and genuineness of loan transaction. Affirmation of findings of AO by appellate authorities without undertaking similar exercise also could not be sustained. They just glossed over and mechanically affirmed findings of AO. Therefore, matter was remanded to AO for limited purpose of holding enquiry on the issue of additions made under section 68, without answering the substantial questions of law.

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2005-2006

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