Facts of the Case

A search and seizure operation under Section 132 was conducted on the KRBL Group on 30.03.2016. Pursuant thereto, assessment for Assessment Year 2014-15 was completed under Section 153A read with Section 143(3). The Assessing Officer made an addition of ₹10 crore under Section 68 treating unsecured loan received from M/s Shashi Foods India Pvt. Ltd. as bogus and also disallowed interest of ₹1.03 crore paid on such loan. The CIT(A) deleted the addition and interest disallowance, holding the loan to be genuine. The Revenue’s appeal before the ITAT was dismissed, leading to the present appeal under Section 260A.

Issues Involved

Whether the ITAT erred in deleting the addition of ₹10 crore made under Section 68 on account of unsecured loan, whether the assessee failed to establish identity, creditworthiness and genuineness of the lender, and whether enquiries into the lender’s source of funds could be undertaken in the assessee’s assessment for AY 2014-15.

Petitioner’s Arguments

The Revenue argued that the lender, Shashi Foods India Pvt. Ltd., lacked creditworthiness as its funds were allegedly routed through entities providing bogus purchase bills. It was contended that mere receipt of funds through banking channels does not establish genuineness, and that the assessee failed to explain why such a large unsecured loan was advanced without collateral. Reliance was placed on Nova Promoters and N.R. Portfolio to submit that deeper scrutiny was warranted.

Respondent’s Arguments

The assessee submitted that the loan was received through proper banking channels, interest was paid after TDS, and the loan was fully repaid in the subsequent financial year. The lender confirmed the transaction both in its statement recorded during survey and in response to notice under Section 133(6). It was argued that enquiries into the purchases or creditors of the lender amounted to examining the source of source, which was impermissible for AY 2014-15, prior to the amendment introduced by the Finance Act, 2022.

Court Order / Findings

The Delhi High Court held that the assessee had duly discharged its onus under Section 68 by establishing the identity of the lender, the creditworthiness through bank statements, and the genuineness of the transaction by receipt, interest payment and repayment through banking channels. The Court observed that doubts regarding purchases or creditors of the lender are irrelevant in the assessment of the borrower and pertain to the lender’s assessment. It was reiterated that prior to Finance Act, 2022, there was no requirement for the assessee to prove the source of the source. The Court found no perversity in the concurrent findings of the CIT(A) and ITAT.

Important Clarification

The Court clarified that for assessment years prior to the Finance Act, 2022, once the assessee establishes identity, creditworthiness and genuineness of the lender, the Revenue cannot require proof of the source of source. Enquiries into the lender’s internal transactions must be carried out in the lender’s assessment and not that of the borrower.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld the orders of the CIT(A) and ITAT deleting the addition of ₹10 crore made under Section 68 and the related interest disallowance, holding that no substantial question of law arose for consideration.

Link to Download order- https://mytaxexpert.co.in/uploads/1769503053_PRINCIPALCOMMISSIONEROFINCOMETAX4DELHIVsKRBLINFRASTRUCTURELTD.pdf

 

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