ITAT confirms the addition because the authenticity of the transaction has not been proven

Unsecured loan - Sham Company - ITAT - Authenticity of the transaction - Taxscan

Hyderabad Bank of ITA has confirmed an addition made by the Income Tax Department regarding an unsecured loan from a shell company as the assessee failed to prove the authenticity and creditor’s solvency under section 68 of the Income Tax Act 1961.

During the valuation procedure, the valuation officer asked the assessee, a company located in Hyderabad, to prove the creditworthiness of an unsecured loan of approximately Rs. 46 crores from an entity to Kolkata.

The assessee produced documents from the creditors, including their tax return acknowledgments, copies of bank statements reflecting loan transactions, their explanation regarding the source of funds as well as confirmations to lower authorities, if thus discharging the triple burden of identity, authenticity, and solvency under section 68 of the Act.

The Tribunal Bench consisting of Accountant Member Shri A.Mohan Alankamony and Judicial Member Shri SSGodara relied on the decision of the Apex Court in PCIT Vs. NRA Iron and Steel Pvt. Ltd., in which it was held that the mere filing of documentary evidence does not in itself prove the authenticity or worthiness of a matter relating to unexplained cash credits.

Confirming the addition, the Tribunal observed that the assessee is the promoter/CEO of a highly reputable entity and his staff members in Kolkata only arranged for the disputed unsecured loans.

“This convincing explanation does little to the rescue of the assessee since it goes against all human probabilities that a person, unknown in Kolkata, could receive such large sums of unsecured loans without any surety. This is in addition to the fact that he did not produce a single employee who arranged all these loans. We therefore conclude in light of the foregoing Settlement Law as well as the relevant facts and circumstances herein that the Assessed has failed to prove the authenticity and creditworthiness of the disputed unsecured loan monies. We therefore find no reason to interfere with the action of the learned lower authorities making the disputed addition,” the Tribunal concluded.

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