Can loan from director be added u/s 68 if loan is out of O.D. against F.D. done from cash deposit?

[2026] 484 ITR 486 (#Delhi) #Sheela #Overseas Pvt. Ltd. V. Principal Commissioner of Income-Tax and another Vibhu Bakhru and Tejas Karia JJ. 28.05.2025 Playlist: 68, Loans #68: #Case #credits A.Y: 2015-16/Assessee Question: Can #loan from #director be added u/s 68 if loan is out of O.D. against F.D. done from cash deposit? 1. The assessee was engaged in the business of readymade garments and leather goods. 2. It had received Rs. 83 lakhs of unsecured loans from two of its directors RCB and HB during the year relevant to the assessment year 2015-16. 3. In the scrutiny assessment under section 143(3) of the Income-tax Act, 1961, the Assessing Officer treated the unsecured loan of Rs. 51 lakhs from the director HB, who had failed to appear in response to the notice under section 131, as unexplained income and made an addition under section 68. 4. The assessee explained that the amount received from HB was sourced from an overdraft facility availed of by him from a bank which overdraft facility was secured by the director HB by pledging his fixed deposit receipts. 5. The assessee also furnished the bank certificate in support of the claim and annexed copies of the returns filed by the director HB for the assessment years 2013-14 and 2014-15. 6. In the remand report called for by the Commissioner (Appeals), the Assessing Officer pointed out that there were cash deposits in the bank account of director HB which were found to be suspicious. 7. The Commissioner (Appeals) observed that the overdraft facility secured by the director HB from the bank had been utilized by him in the previous year through cash deposits in his account, that the cash deposits made in the bank account of HB from September 13, 2014, to December 22, 2014 were to the extent of Rs. 27.50 lakhs remained unexplained and accordingly, sustained the additions made under section 68. 8. The Tribunal upheld his order. 9. On the issue whether the explanation provided by the assessee satisfied the proviso to section 68, it was held, allowing the appeal, that the amendment to section 68 introduced by virtue of the Finance Act, 2022 ([2022] 442 ITR (St.) 91) made it clear that section 68 as was in force prior to April 1, 2023, did not require the assessee to explain the source of the source of funds other than share capital money, share capital, share premium or any amount of such nature. 10. Thus, the enlargement of the assessee's onus to explain the source of the source of sums credited as unsecured loans necessitated the amendment to section 68 to expressly provide for the same. 11. The assessee had duly offered an explanation regarding the nature as well as source of the funds received by it as unsecured loan from its director HB. 12. There was no dispute that the payments were reflected as unsecured loans and as to the nature of the credit entry. 13. It was clear from the plain language of the proviso to section 68 that it was applicable only in cases where the amount credited in the assessee's books consisted of share application money, share capital, share premium or any such amount. 14. The expression "such amount" would necessarily take its color from the terms share application money, share capital and share premium. 15. The rule of noscitur a sociis would be applicable, as the share application money, share capital and share premium fell within the broad spectrum of shareholders' fund, which were introduced as capital in a company. 16. The assessee had produced sufficient material in support of its explanation. The assessee had established (a) the identity of the source; (b) financial capacity of such source; and (c) the genuineness of the transaction and had discharged its burden. 17. The assessee had explained that the funds had been lent by its director HB and had additionally produced relevant documents to show that the funds had been received through banking channels from the bank account of HB. 18. In so far as the genuineness of the transaction was concerned, there was material on record to indicate that the amount credited in the books of account, which had been reflected as loans from HB were unsecured loans and HB had confirmed it. 19. HB was not a stranger to the assessee and was vitally interested in the affairs of the assessee. 20. Therefore, the financial assistance extended by him could not be doubted. #IncomeTaxNotices #IncomeTaxCases #incometaxcasesanalysis #IncomeTaxLaw #advocateamitkumargupta #9811291390(Call only after taking time on whatsApp) #[email protected] #[email protected]