ITAT Ranchi Rules: No Double Taxation When Ultimate Borrower Admits Bogus Loans as Income
Background of the Dispute
The Income Tax Appellate Tribunal, Ranchi Bench, in the case of ACIT Vs Highlight Infrastructure Pvt. Ltd, decided two connected appeals filed by the Revenue for Assessment Year 2021-22. Both appeals arose out of separate but identically dated orders of the CIT(A), Patna-3, Patna passed on 24/07/2024.
Since the issues involved in both appeals were the same, the Tribunal dealt with them together through a consolidated order, treating ITA No. 384/Ran/2024 as the lead case and applying the same reasoning to ITA No. 385/Ran/2024.
Central to the dispute were:
- Additions made in the hands of the assessee towards alleged bogus unsecured loans advanced to M/s Atibir Industries Company Ltd., and
- A further addition made by estimating commission or unexplained expenditure allegedly earned/ incurred in arranging such loans.
The key question before the Tribunal was whether additions could be sustained in the hands of the assessee when M/s Atibir Industries Company Ltd., being the ultimate beneficiary of these funds, had already disclosed the full amount of unsecured loans as its income pursuant to a search and seizure action.
Parties and Representation
- The Revenue was represented by Shri Ashish Kumar Deharia, ld. CIT-DR.
- The assessee company, Highlight Infrastructure Pvt. Ltd, was represented by Shri Devesh Poddar, ld. AR.
The assessee was described as part of the larger Atibir Group, which had been subject to search and seizure proceedings, leading to wide-ranging investigations into loan transactions within the group.
Facts: Unsecured Loans and Group Search
Search Proceedings and Disclosure by M/s Atibir Industries Company Ltd.
The ld. AR explained that a search and seizure operation was carried out in the Atibir Group cases, which included M/s Atibir Industries Company Ltd. During the course of such proceedings, M/s Atibir Industries Company Ltd. made a disclosure of ₹ 25 crore.
This amount of ₹ 25 crore represented the entire unsecured loans that M/s Atibir Industries Company Ltd. had received from various entities. These included the loans allegedly advanced by the assessee, Highlight Infrastructure Pvt. Ltd.
In effect, the ultimate borrower, M/s Atibir Industries Company Ltd., accepted that the entire pool of unsecured loans was its own income and offered it to tax.
Additions in the Hands of the Assessee
Despite this group disclosure, the Assessing Officer:
- Treated the unsecured loans advanced by the assessee to M/s Atibir Industries Company Ltd. as bogus, and
- Made an addition in the hands of the assessee on that basis.
Additionally, the Assessing Officer:
- Treated the assessee as having earned commission income or incurred unexplained expenditure in arranging these alleged accommodation entries, and
- Estimated such commission at 5% of the loan amount.
The assessee carried the matter in appeal before the CIT(A), challenging both kinds of additions.