ITAT Deletes Section 68 Addition on Loans and Share Capital from Directors:

Its My Name Private Limited is engaged in the business of manufacturing, trading and export of gold and jewellery, filed its return for Assessment Year 2016-17 declaring an income of Rs 57,62,840. The return was selected for scrutiny under Section 143(3). During assessment, the AO examined three transactions involving a journal entry relating to a loan advanced by director Rahul Gupta, a loan received from director Purnima Gupta and share capital introduced by Purnima Gupta.

The AO treated the aggregate amount of Rs 17,45,82,102 as unexplained cash credits under Section 68 of the Act. The CIT(A) upheld the addition.

The assessee contended that the Rs 5,44,82,102 transaction was merely a journal entry and involved no actual flow of funds. It further submitted that Purnima Gupta’s funds were sourced from her NRI sister, Shweta Aggarwal, through recognised banking channels and that the identity and creditworthiness of the parties were supported by documentary evidence.

The Tribunal noted that the Section 68 addition comprised unsecured loans of Rs 5,44,82,102 and Rs 7.02 crore received from directors Rahul Gupta and Purnima Gupta respectively, along with Rs 4.99 crore introduced by Purnima Gupta as share capital. The assessee had placed a detailed paperbook containing confirmations, ledgers, bank statements, ITR acknowledgements and details concerning the investments and loans.

The Tribunal observed that both the unsecured loans and share capital had originated from the assessee’s existing directors, who had duly established their sources through supporting evidence. Importantly, the Tribunal found that such evidence had not been specifically rebutted by the lower authorities.

The Tribunal held that the lower authorities had erred both in law and on facts by treating the unsecured loans and share capital received from the assessee’s directors as unexplained cash credits under Section 68. Accordingly, the Tribunal deleted the entire addition of Rs 17,45,82,102 made under Section 68 and allowed the assessee’s appeal.