ACIT, Circle 23 (2) vs. Signature Global (India) Pvt. Ltd, ITA No.9264 /Del/2019, ITAT Delhi
The Income Tax Appellate Tribunal (ITAT) Delhi ruled that share capital and unsecured loans cannot be treated as unexplained cash credits under Section 68 if the assessee has provided sufficient documentary evidence, and the Assessing Officer (AO) has not conducted a proper inquiry.
Key Facts of the Case
• The assessee, engaged in the construction and development of affordable housing, received ₹13.09 crore in share capital and ₹83.32 crore as unsecured loans.
• The AO invoked Section 68, stating that certain shareholders and lenders had low income levels and therefore lacked creditworthiness.
• Additions made by AO:
✔️ ₹39.36 lakh as unexplained share capital.
✔️ ₹23.71 crore as unexplained unsecured loans.
✔️ ₹27.02 lakh disallowed as interest expenses on the unsecured loans.
• The CIT(A) deleted these additions, ruling that the assessee had provided sufficient evidence.
• The Revenue filed an appeal before the ITAT.
Key Observations by ITAT
1. Share Capital Addition Under Section 68 Was Unjustified
• The assessee submitted:
✔️ PAN details, ITRs, bank statements, confirmations, and balance sheets of shareholders.
✔️ Source of source for investment made by Vikas Garg, including funds received from Saroj Devi and Tilak Raj.
• ITAT held that:
• AO failed to conduct further inquiry or disprove the documents submitted.
• Once the source and identity of shareholders are proven, no addition can be made under Section 68 merely because the investor had a low income.
2. Unsecured Loans Addition Was Arbitrary
• The assessee provided:
✔️ Loan confirmations, ITRs, bank statements, and balance sheets of all lenders.
✔️ Evidence that TDS was deducted on the interest paid to lenders.
• ITAT held that:
• AO did not investigate the lenders despite having all details.
• The creditworthiness of lenders cannot be rejected solely based on low taxable income, as funds can originate from various sources.
• Since loans were repaid through banking channels, the transactions were genuine.
3. Interest Disallowance Was Incorrect
• ITAT noted that since the loan was genuine, the interest paid on it was also allowable as a business expense.
Final Verdict
• ITAT upheld CIT(A)’s decision and deleted the additions of:
✔️ ₹39.36 lakh (share capital)
✔️ ₹23.71 crore (unsecured loans)
✔️ ₹27.02 lakh (interest expense disallowance)
• Revenue’s appeal was dismissed.
Key Takeaway for Taxpayers
✔️ Providing documentary evidence (ITRs, bank statements, confirmations) is crucial in defending share capital and unsecured loans under Section 68.
✔️ AO must conduct a proper inquiry before making additions—mere doubts or assumptions are insufficient.
✔️ Loan transactions through banking channels, with TDS deducted, strengthen the case for genuineness.
This ruling reaffirms that unexplained cash credit additions under Section 68 must be backed by clear evidence and not just suspicion.