Section 68 – Where assessee received certain unsecured loan from a non resident, in view of fact that the said amount was advanced through an account payee cheque from NRE account of lender, no addition can be made u/s. 68 in respect of the said loan.
FACTS
The asseessee had taken an unsecured loan from one party ‘S’ residing in USA. The amount was obtained from an NRE account maintained by the lender with ‘C’ bank.
According to the Assessing Officer, the assessee failed to submit any evidence, viz. a copy of bank account of the lender in the country of his residence from where the funds were transferred to his NRE account maintained with ‘C’ bank. The Assessee also failed to submit any evidence regarding the remittance into the NRE account.
In the absence of the above-mentioned documents, the Assessing Officer held that the creditworthiness of the lender was not established and added the loan amount to the total income of the assessee u/s. 68.
The Commissioner (Appeals) confirmed the above treatment.
On Second appeal:
HELD
The Tribunal observed that in order to discharge the onus u/s. 68, the assessee must prove the following ingredients:-
1. The identity of the creditor
2. The capacity of the creditor to advance the money.
3. The genuineness of the transaction
There was no dispute regarding the identity of the creditor. The assessee had submitted a certificate from the manager of ‘C’ bank stating that ‘S’ holder of NRE account had transferred Rs. 4,25,000/- through a cheque on the account of the assessee.
The assessee had also produced the bank statement of ‘C’ bank before the authorities to demonstrate that ‘S’ had transferred the said amount to him. The assessee had also produced confirmation letter in the form of an affidavit of ‘S’ duly attested by ‘T’, Notary Public State of Meryland wherein ‘S’ had stated that he is a resident of USA. He had also confirmed giving of interest free unsecured loan from ‘C’ bank by way of cheque. The lower authorities were not in question about the authenticity of the affidavit. The only doubt was that the lender had not disclosed his source of income. The lower authorities also verified the passport of the lender.
There is no dispute that ‘S’ was maintaining an NRE account which was opened with an initial deposit of $10,000, i.e., Rs. 4,48,829/-. The ‘C’ bank had issued a certificate to this effect. The Assessing Officer raised an objection that the assessee failed to file a copy of the bank account of the lender in the country of his residence. The assessee had also submitted a copy of ITR filed in USA by ‘S’ for the period 01.01.04 to 31.12.04, wherein the annual income of $22,201 had been declared. There is no dispute about the financial capacity of the lender as well.
Considering the entire facts and circumstances of the case and the income which the lender had reported in ITR, there was no reason to doubt the creditworthiness or the financial capacity of the lender and thus there can be no addition u/s. 68.
Therefore, the impugned addition was deleted.
