Survey Statement Alleging Bogus Loans Could Not Override Bank Records, ITRs and Confirmations; ITAT Deletes Rs. 1.45 Crore Section 68 Addition

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has dismissed three appeals filed by the Income Tax Department against Rubberwala Shelter for Assessment Years 2012-13 and 2013-14.

The dispute arose after a survey was conducted on the Rubberwala Group. During the survey, Tabrez Shaikh, partner of Rubberwala Shelter and director of a group company, allegedly stated that some unsecured loans received from Surat-based entities linked to Bhanwarlal Jain group were accommodation entries.

Based on this statement, the AO reopened the assessments and treated the loans of Rs 1.45 crore as unexplained cash credits under section 68 of the Income Tax Act. Apart from this, AO also disallowed Rs 10,28,477 claimed as interest expenditure on these loans.

During the assessment proceedings, the assessee filed several documents to prove the genuineness of the loans, such as loan confirmations, bank statements, income tax return of lenders, audited financial statements, ledger accounts and TDS certificates. The assessee also argued that the loans were taken through the banking channels and interest was paid after deducting TDS.

The assessee further relied upon an affidavit filed by Tabrez Shaikh in which he retracted his earlier statement. He said the statement was made under stress and health issues and the loans were legitimate business borrowings.

The CIT(A) deleted the additions on examination of evidence. The Commissioner noted that the assessee has been able to establish the identity of the lenders, their creditworthiness and the genuineness of the transactions. The survey also did not find any incriminating material in connection with the loans.

The Revenue challenged this relief before the ITAT. However, the Tribunal confirmed the order of the Commissioner (Appeals). The Tribunal observed that the assessee was able to produce sufficient documentary evidence to discharge its burden under section 68. Repayment of loans through banking channels and payment of interest after deduction of TDS further corroborated the genuineness of the transactions.

The Tribunal held that a retracted statement alone could not be the sole basis for making additions when documentary evidence supported the assessee’s claim. It also relied on Gujarat High Court decisions which state that once the identity of lenders, source of funds and repayment of loans are established, additions under Section 68 cannot be sustained merely on suspicion.

Accordingly, the ITAT confirmed the deletion of the addition of Rs 1.45 crore and the related interest disallowance of Rs 10.28 lakh. Since the issues in the other two appeals were identical, the Tribunal dismissed those appeals as well.