“unsecured loan addition”
The decision most relied on for unsecured loan addition is Commissioner of Income Tax v. Navodaya Castles Pvt. Ltd. (367 ITR 306), cited in 216 judgments on BharatTax.
Leading authorities on unsecured loan addition
For an addition under Section 68 relating to share application money or unsecured loans, the Assessing Officer must conduct proper inquiries and rebut the evidence provided by the assessee regarding identity, genuineness, and creditworthiness; additions cannot be sustained merely on suspicion or without investigation if the assessee has discharged its initial onus.
An assessee is required to prove the identity, creditworthiness, and genuineness of a cash credit in their books of accounts, such as an unsecured loan, but is generally not required to prove the source of the source for such credits. Additions under Section 68 are deleted if sufficient proof of creditors, repayment, and TDS on interest is provided.
Additions to income cannot be made based merely on suspicion; concrete evidence is required to substantiate such claims by the tax authorities.
Where an assessee furnishes full particulars of unsecured loans, including confirmation, name, address, PAN, income tax returns, balance sheet, profit and loss account, and computation of total income for all creditors, and the loans are routed through cheques and duly reflected in the balance sheet, the Assessing Officer is not justified in making an addition under Section 68.
Additions made by an Assessing Officer under Section 68 for unsecured loans or share capital/premium are perverse if based merely on an allegation of 'shell companies' without proper findings, especially when the assessee has provided evidence and lenders confirmed transactions through Section 133(6) notices.
An addition made under Section 68 for unsecured loans is to be deleted when the loan amount is returned to the lender within the same financial year, and all transactions are carried out through banking channels, as this discharges the assessee's onus of liability.
An addition under Section 68 for cash credits is deleted when the assessee discharges its onus by establishing the identity, genuineness, and creditworthiness of both investors for share allotments and lenders for unsecured loans.
An addition under Section 68 for unsecured loans is not justified if the assessee provides documentary evidence establishing the identity, creditworthiness of the creditors, and genuineness of the transactions.
