ITAT Delhi Remands Section 68 Addition on Directors’ Loans; Seeks Verification of Insurance Claim Trail

Key Facts and Tribunal Findings

The Income Tax Appellate Tribunal (ITAT), Delhi Bench “F”, has set aside additions made under Section 68 of the Income-tax Act, 1961 in the case of Meenakshi Saree Centre Pvt. Ltd. for Assessment Year 2016–17, directing fresh verification of the source of unsecured loans received from its directors.

The assessee company had received unsecured loans aggregating to ₹7.77 crore from its directors, Ms. Richa Agarwal and Ms. Mohini Agarwal. During assessment proceedings, the Assessing Officer questioned the creditworthiness of the lenders, noting that their reported incomes were not commensurate with the magnitude of loans advanced. Further, notices issued under Section 133(6) remained unserved, and the bank statements of the lenders reflected multiple credits from third parties, raising doubts about the genuineness of the transactions. The Assessing Officer accordingly treated the loans as unexplained cash credits under Section 68, a view upheld by the Commissioner (Appeals).

Before the Tribunal, the assessee explained that the funds originated from insurance claims received upon the death of a key director, which were initially parked with close relatives due to security concerns and later returned to the directors, who then advanced the funds to the company. It was contended that the creditworthiness of the lenders was thus established through this trail of funds.

The Tribunal observed that while the explanation provided by the assessee outlined a plausible source of funds, the underlying facts required detailed verification, particularly the flow of funds from insurance proceeds to relatives and subsequently to the directors.

In the interest of justice, the Tribunal held that the matter could not be conclusively decided without proper factual examination. It accordingly set aside the orders of the lower authorities and restored the issue to the Assessing Officer for de novo adjudication, with liberty to the assessee to furnish additional evidence.

The appeal was allowed for statistical purposes.