ITAT Chennai Rules Out Double Taxation on Same Loan Source Under Section 68
The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) in the case of ACIT Vs Antilia Venture Capital has clarified an important principle relating to loans and unexplained cash credits under Section 68 of the Income Tax Act 1961.
Where:
- the identity of the lender is not in dispute,
- the loan transaction is routed through banking channels, and
- the very source of the funds in the hands of the lender has already been examined and subjected to tax,
the Revenue cannot once again invoke Section 68 in the hands of the borrower on the ground that the lender lacks creditworthiness.
The Tribunal thus affirmed the order of the CIT(A) deleting an addition of Rs.14,50,00,000/- made as unexplained cash credits in the hands of the assessee-firm.
Background of the Dispute
Business and Assessment Selection
The assessee, a partnership firm engaged in money lending, filed its return of income for Assessment Year 2016-17 declaring a total income of Rs.23,67,220/-. The case was selected for scrutiny specifically to verify:
- the genuineness, and
- the source
of unsecured loans reflected in the assessee’s books.
Discovery During Search Proceedings
During a search conducted in the case of one of the partners, Shri Sunil Khetpalia, the Assessing Officer (AO) noted that the assessee had obtained:
- unsecured loans aggregating to Rs.14.50 crore from Smt. Alka Khetpalia,
- all received and later repaid through regular banking channels during the relevant year.
The AO did not dispute:
- that the loans were actually received,
- that repayments were duly made, and
- that the lender’s identity was fully established.
However, the AO was not satisfied about the creditworthiness of the lender and therefore invoked Section 68, treating the entire sum of Rs.14.50 crore as unexplained cash credit in the hands of the assessee-firm.
Findings Before the CIT(A)
Subsequent Assessment of the Lender
In the appellate proceedings, the assessee produced material to show that:
- The source of funds with Smt. Alka Khetpalia (the lender) had been independently examined in her own assessment proceedings.
- In that reassessment, the AO made an addition of Rs.12,51,29,060/- u/s 68 in respect of the very cash deposits and bank entries which formed the source of the loans advanced to the assessee.
- That addition in the lender’s case had been settled and attained finality under the Direct Tax Vivad Se Vishwas Scheme, 2024.
Additional Disclosure Before Settlement Commission
Further, it was brought on record that:
- A separate sum of Rs.3,39,90,000/- representing cash deposits had already been offered by Shri Sunil Khetpalia before the Settlement Commission.
When these elements were considered together, the quantification of amounts already subjected to tax or admitted in the hands of the relevant parties was higher than the total loan amount of Rs.14.50 crore extended to the assessee-firm.
Conclusion of the CIT(A)
On this factual matrix, the CIT(A) concluded that:
- The source of the funds advanced by Smt. Alka Khetpalia to the assessee stood adequately explained.
- Once the same money has been brought to tax in the hands of the lender/beneficial owner, it cannot be labelled once again as unexplained in the hands of the borrower.
Accordingly, the CIT(A) deleted the entire Section 68 addition of Rs.14,50,00,000/-.
The Revenue challenged this relief before the ITAT.
Revenue’s Arguments Before the ITAT
The Departmental Representative (DR) placed reliance on the assessment order and assailed the CIT(A)’s decision broadly on the following grounds: