HC Refuses to Interfere with ITAT Order Deleting Section 68 Additions on Loan Transactions

The Revenue filed an appeal under Section 260A challenging the ITAT’s order which had deleted additions made under Section 68 in the case of Sperry Plast Ltd. The additions related to unsecured loans received from two entities, Bhargabi Vinimav Pvt. Ltd. and Pioneer Dealtrade Pvt. Ltd. During remand proceedings, the Assessing Officer issued notices to both creditors, which were duly served and responded to. The assessee furnished confirmations, income tax returns, audited financial statements, and bank statements of both lenders.

The Tribunal noted that the creditors had substantial net worth and adequate sources of funds, and that the loans were routed through banking channels and repaid shortly thereafter.

Issue Raised: Whether the ITAT erred in deleting additions under Section 68 by treating the loan transactions as genuine despite their short duration and the Revenue’s allegation of accommodation entries.

HC’s Ruling: The Hon’ble High Court dismissed the Revenue’s appeal, holding that the findings recorded by the Tribunal were purely factual and based on an appreciation of evidence. The Court observed that repayment of a loan within a short span of time does not, by itself, render the transaction non-genuine. It further noted that short-term loans, especially arising out of business, family, or friendly relations, may even be interest-free.

The Court emphasised that the Revenue had failed to carry out deeper enquiries that could have supported its suspicion, such as examining the relationship between the parties or other regulatory aspects. The ITAT’s order deleting the additions was upheld.

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