Sec. 68 Not Invoked for Explained Unsecured Loans via Group Co.

Case Details: Principal Commissioner of Income-tax (Central) vs. R B Farms and Estates (P.) Ltd. - [2025] 174 taxmann.com 1182 (Delhi)

Judiciary and Counsel Details

• Vibhu Bakhru & Tejas Karia, JJ.
• Sanjay Kumar, SSC, Ms Monica Benjamin & Ms Easha Kadian, JSCs for the Appellant.
• Rohit Jain & Saksham, Advs. for the Respondent.

Facts of the Case

A search under section 132 was conducted at the premises of the AMPPL group, including the assessee. Following this, a notice under section 153A was issued, and the assessee filed a return declaring income of Rs. 83.59 lakhs along with the required information.

During the assessment proceedings, the assessee informed the AO that the source of the unsecured loan was cash proceeds from bogus and inflated purchases by its group company, which was channelised as unsecured loans from dummy and shell companies. Assessing Officer (AO) added the assessee’s income under section 68 on account of unsecured loans from non-genuine entities.

On appeal, CIT(A) deleted the additions, and the Tribunal upheld them. Aggrieved revenue filed the instant appeal before the Delhi High Court.

High Court Held

The High Court held that section 68 is applicable only where the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the AO, satisfactory.

In the instant case, the assessee had explained that the source of the unsecured loan was the cash generated from inflating purchases by the group entity. Thus, the credits reflected in the books of the assessee were received from the group entity, although through the route of two sham companies.

The group entity disclosed the source of funds that were infused as unsecured loans in the assessee as cash generated from inflated purchases, which were routed through sham entities as unsecured loans in the assessee. However, the assessee is not required to be examined as a stand-alone case by ignoring the disclosures made by its group company, which has admittedly introduced the funds and debited in the books of account of the assessee.

In view of the above, the unsecured loan to the assessee as reflected in the assessee’s books of account was explained and cannot be considered as undisclosed income. Moreover, the funds had already been taxed in the hands of one of the group companies where income was generated.

List of Cases Reviewed

• Order passed by ITAT Delhi in ITA No.7144/Del/2018 dated 21-10-2021 [Para 28] – Affirmed

List of Cases Referred to

• Pr. CIT v. Surya Agrotech Infrastructure Ltd. [2023] 154 taxmann.com 156/295 Taxman 745 (Delhi) (para 27).