Big Section 68 Relief: ITAT Says Written Loan Agreement or Interest Not Essential to Prove Loan Genuineness:

Big Section 68 Relief: ITAT Says Written Loan Agreement or Interest Not Essential to Prove Loan Genuineness The Income Tax Appellate Tribunal (ITAT), Ahmedabad, deleted the Rs 39 lakh addition towards unexplained credits under section 68 of the Income Tax Act. The Tribunal ruled that the absence of a written loan agreement and interest repayment does not prove the genuineness of a loan transaction.

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The AO had treated unsecured loans of Rs 39 lakh as unexplained cash credits under section 68 of the Income Tax Act, 1961. The loans were received from Mr Aziz Huseni Bhai Adenwala (Rs. 25 lakh), Mrs Yasmin Firozbhai Lanewala (Rs. 10 lakh), and Mr Khuzama Fakhruddin Gangardiwala (Rs. 6 lakh). The AO added this amount to the assessee’s income, doubting the genuineness of the loans. The assessee challenged this addition before the CIT(A). To prove the genuineness of the loans, the assessee submitted various documents before the CIT(A), such as loan confirmations, bank statements of lenders and the assessee, NRI status, and business licenses of two lenders outside India. The CIT(A), however, rejected the assessee's appeal and upheld the addition, saying that the assessee failed to prove the genuineness of the transaction due to the absence of loan agreements, the interest involved in the loan, and the repayment of the loan and interest. The aggrieved assessee approached the ITAT.

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The ITAT, after examining the facts, disagreed with the CIT(A), holding that a written loan agreement or repayment of loan and interest are not essential ingredients for establishing the genuineness of the loan transaction. The Tribunal highlighted that loans can be given to friends without charging any interest. Additionally, it ruled that a delay of five years in repaying the loan does not make the loan transaction suspicious. The Tribunal also noted that the assessee had made the required discharge and discharged his onus of proving the genuineness of the loans. Accordingly, the tribunal deleted the addition of Rs 39 Lakhs made under section 68 of the Income Tax Act.