Sunita Chaudhary vs. The A.C.I.T, ITA No. 3398/DEL/2018 [A.Y. 2010-11]
In a recent ruling, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) provided much-needed clarity on the treatment of loan repayments when the primary obligation lies with someone other than the assessee, despite the formal documentation being in the assessee’s name. The tribunal deleted a protective addition of Rs. 3,85,594 made in the hands of the assessee, noting that the loan was availed and repaid by her husband, who had already admitted the liability.
Background of the Case
The case pertained to Assessment Year (AY) 2010–11, in which the assessee, a resident individual running a milk dairy, was subjected to search and seizure proceedings under Section 132 of the Income Tax Act. This was part of a broader search on the Karan Luthra group.
During the proceedings, three cash deposit slips involving transactions with Muthoot Finance Ltd. totaling around Rs. 8.38 lakh were found. The Assessing Officer (AO) added a portion of Rs. 3.85 lakh in the hands of the assessee on a protective basis, while a major amount of Rs. 4.53 lakh was added substantively in her husband’s assessment.
Key Contention of the Assessee
The assessee contended that the loans in question were availed and repaid by her husband. She merely acted as a co-applicant or nominal holder in some cases. Crucially, her husband had already accounted for the loan transactions in his books of accounts and also submitted a letter explicitly accepting responsibility for the loans and repayments.
CIT(A)’s Findings
The Commissioner of Income Tax (Appeals) acknowledged that the Rs. 4.53 lakh had already been added substantively in the hands of the husband. However, it upheld the protective addition of Rs. 3.85 lakh in the hands of the assessee, citing ambiguity over the balance loan entries.
ITAT Delhi’s Ruling
The tribunal took a holistic view, stating:
There is no doubt that the loans were taken by the husband of the assessee in her name and he is repaying the said loan. These facts have evidentiary value as the letter of the husband clearly establishes the fact that he has taken the loan on behalf of his wife and has acknowledged the same.
With this, the ITAT concluded that sustaining a protective addition in the hands of the assessee was unwarranted and proceeded to delete the Rs. 3.85 lakh addition.
Takeaway
This ruling reinforces the principle that tax liability should rest with the true owner or beneficiary of the income or expenditure. Even if a loan is held in the name of an assessee, if the actual transaction and repayment are carried out by another person (in this case, the spouse), and there is sufficient documentary evidence to support the claim, protective or substantive additions in the assessee’s hands cannot be sustained.