2010 (10) TMI 796 - HC - Income Tax

High Court upholds Tribunal decision on cash credit claim under IT Act, emphasizing evidence evaluation

The High Court dismissed the Revenue's appeal challenging the Tribunal's decision to allow the cash credit claimed by the assessee under s. 68 of the IT ... Addition under s. 68 of the IT Act - unsecured loan - quantum of amount of Rs. 24,86,866 found to have been borrowed from eight different creditors by way of 'unsecured loan' to the tune of Rs. 3,25,000 each from two creditors, Rs. 3,00,000 from one creditor, Rs. 1,00,000 each from four creditors and Rs. 11,36,866 from one creditor. Maximum amount that has been borrowed by assessee, was Rs. 11,36,866 from Shri K.K. Sharma, director of the company - Held that:- confirmations given by those creditors and observed that there was no reason to doubt correctness of the claimed cash credit amounting to Rs. 24,86,866 taken from the above named creditors, Appeal being devoid of merit is accordingly dismissed in limine Issues:Appeal against the Tribunal's judgment allowing cash credit claimed by the assessee under s. 68 of the IT Act - AO disallowed the cash credit - Tribunal reversed the AO's order - Evaluation of evidence - Question of law regarding the correctness of the cash credit amount.Analysis:The High Court heard the appeal filed by the Revenue challenging the Tribunal's decision to allow the cash credit claimed by the assessee under s. 68 of the IT Act. The AO had initially disallowed the cash credit of Rs. 24,86,866, alleging it was an unsecured loan. The Tribunal, however, partly allowed the appeal filed by the assessee against the order of the CIT(A) and directed the AO to delete the addition of the said amount. The Revenue contended that the Tribunal was unjustified in reversing the AO's order, which was based on a correct appreciation of documents and material on record. The AO had disallowed the cash credit as the explanations provided by the assessee and the creditors were unsatisfactory. Only one creditor appeared before the AO and provided an explanation which raised doubts about the source of the money. The other creditors did not appear but filed confirmations admitting the advancement of the loan. The CIT(A) upheld the AO's order, but the Tribunal erred in allowing the appeal on this ground.Upon perusal of the Tribunal's order, the High Court found that the non-appearance of the other creditors before the AO should not be a sole reason to discard their version, especially when one of them had appeared and admitted to advancing the loan. The High Court emphasized that the AO should have examined the confirmations and affidavits filed by the other creditors on their merits, treating them as statements given to him. The Court highlighted that the quantum of the borrowed amount and the detailed discussions in the Tribunal's judgment supported the correctness of the claimed cash credit. The High Court concluded that the matter primarily involved the appreciation and evaluation of evidence and did not raise any substantial question of law warranting interference by the Court.In the final analysis, the High Court dismissed the appeal as devoid of merit and upheld the Tribunal's decision to allow the cash credit claimed by the assessee. The Court determined that the issue did not involve any substantial question of law justifying the Court's interference in the matter.