Background of the Case 

In the matter of DCIT v Aaryavart Infrastructure P. Ltd, a Revenue appeal was filed against the Commissioner of Income Tax’s decision, which said that the assessee’s acceptance of unsecured loans from the party was unrelated to the transaction’s omission from the tax audit report and might have been a mistake.

Argument Advance 

Revenue claimed that the CIT had committed legal and factual errors by eliminating the addition made under Section 68 of the Income Tax Act for Rs. 1,31,50,000 and the addition made under Section 2(22)(e) of the Act. Additionally, the CIT erred in law and fact by partially deleting the addition made at Rs. 10,00,000/- on account of short-term capital gains and completely deleting the addition made at Rs. 1,52,10,011/-, which is 25% of labour and transportation expenses.

Analysis of ITAT order 

The Income Tax Appellate Tribunal’s two-member panel, which was comprised of T.R. Senthil Kumar, a judge, and Annapurna Gupta, an accountant, affirmed the CIT’s decision to delete the addition made in connection with the deemed dividend and ruled that non-shareholders cannot be taxed on presumed dividends.

The Tribunal noted that the AO added a total of Rs. 15,96,24,256 to the assessee’s returning income, which resulted in an income assessment of Rs. 16,45,25,546. Out of the aforementioned additions, the AO made the additions in relation to unsecured loans, labour costs, transportation costs, and short-term capital gains in the absence of the assessee filing appropriate and sufficient proof to support its claim. The Tribunal also pointed out that the Rs. 1,31,50,000/- addition made by the AO under Section 68 of the Act related to unsecured loans obtained from one Corporation, the addition being made because the assessee was unable to satisfy the onus of proving the legitimacy of the transactions in accordance with Section 68 of the Act.

The Tribunal stated that the CIT removed the addition, noting that the assessee had properly discharged the burden of demonstrating the validity of the unsecured loans obtained from the Corporation by filing confirmation of the said party, given all relevant information regarding the cheques, through which the amounts have been received, and filing a copy of a bank statement that showed the receipt of cheques therein. As a result, the Tribunal determined that it had no justification for interfering with the CIT’s decision to delete the addition of Rs. 1,31,50,000/- under Section 68 of the Act, which represented unsecured loans obtained by the assessee from a single Corporation.

The Tribunal noted that the CIT had ruled that the AO’s disallowance was unjustifiable since the Assessee had provided all documentation proof of the transaction, and the AO had not cast any doubt on it. Furthermore, the AO’s disallowance was only an ad hoc one. Therefore, the Tribunal said that it had no justification for interfering with the CIT’s decision to delete the addition of Rs. 10,00,000/- on account of short-term capital gains.