ITAT Deletes Rs 2.67 Crore Section 68 Addition, Rejects Retrospective Source-of-Source Requirement

The ITAT Ahmedabad has deleted an addition of Rs 2.67 crore made under Section 68 of the Income Tax Act, 1961, in the case of Nidra Hospitality Gujarat Pvt. Ltd. for Assessment Year 2017-18. The Tribunal held that the assessee had provided sufficient documentary evidence to establish the identity and genuineness of the lender and the loan transaction.

The assessee had received an unsecured loan of Rs 2.67 crore from Carbel Mercantile Ltd. During assessment, it submitted the lender’s PAN, loan confirmation, ITR acknowledgement, audited financial statements, bank statements and proof of interest payment after deduction of TDS. However, the Assessing Officer treated the loan as unexplained cash credit under Section 68, noting that the lender had reported a loss and had received funds shortly before advancing the loan.

The ITAT observed that the assessee had discharged its initial burden by furnishing primary documents establishing the lender’s identity, creditworthiness and genuineness of the transaction. The Tribunal noted that the Assessing Officer did not conduct any independent inquiry or bring any material on record to disprove the documents submitted by the assessee.

The Tribunal further held that for AY 2017-18, the assessee was not required to establish the “source of source” of the loan. The requirement was introduced through the Finance Act, 2022, with effect from April 1, 2023, and therefore could not be applied retrospectively to the present assessment year.

Accordingly, the ITAT deleted the Rs 2.67 crore addition under Section 68. It also deleted the consequential interest disallowance of Rs 3.06 lakh under Section 69C. The ground concerning the 60% tax rate under Section 115BBE was allowed for statistical purposes without deciding its merits.