The case involves Shashi Sharma, a business owner from Ghaziabad, appealing against the addition of Rs 50,00,000 to his income as an unsecured loan, which the Income Tax Department claimed was not adequately substantiated.
During a search and seizure operation by the Income Tax Department, discrepancies were noted in the financial statements of Shashi Sharma, particularly regarding the receipt of an unsecured loan from M/s Amsoft Global Private Limited. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) in Kanpur treated this amount as undeclared income under Section 68 of the Income Tax Act due to insufficient proof of the transaction’s genuineness.
The case was presented before the Income Tax Appellate Tribunal (ITAT) in New Delhi. Shashi Sharma contended that he had sufficiently proven the identity, genuineness, and creditworthiness of the loan transaction, supported by confirmations, tax returns, bank statements, and financial statements of the lender. The ITAT analyzed precedents and the specific provisions of the Income Tax Act concerning the burden of proof in cases of unsecured loans.
The ITAT ruled in favor of Shashi Sharma, citing the lack of incriminating material specifically related to the loan during the search operation. It emphasized that additions to income cannot be based solely on the taxpayer’s books when no incriminating evidence is uncovered during a search. This decision was guided by several high court and Supreme Court rulings that uphold the principle that clear evidence is required to deviate from declared income.
The tribunal’s decision reaffirms the need for the Income Tax Department to have substantial evidence when making additions to a taxpayer’s declared income based on unsecured loans. This case sets a significant precedent for similar cases where the evidence of loan transactions is in question.
Legal Scrutiny of Unsecured Loans in ITA 1841/DEL/2022: Shashi Sharma vs. DCIT, Ghaziabad
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