2013 (10) TMI 1086 - HC - Income Tax

High Court upholds assessee's victory, dismisses department's appeal.

The Commissioner of Income Tax-I Versus M/s Shalimar Buildwell Pvt. Ltd.

The High Court dismissed the department's appeal under Section 260A of the Income Tax Act, ruling in favor of the assessee on both issues. The Court ... Addition u/s 69 of the Income Tax Act of Rs.42.50 lacs under the head 'undisclosed investments' in the purchase of land – Held that:- Money was deposited by the company in the account of Mr. Nankau, who has withdrawn the same and purchased the land. Later, the land was re-sold to the assessee's company. In the hands of the assessee's company, the source of the advance was fully explained. In fact, the land was purchased by the assessee's company through Mr. Nankau. The A.O. made the addition merely on suspicion which is not desirable in the eye of law. The money used by the company through Mr. Nankau has been fully explained in the books of account. Nobody would like to convert the white money into black money - In the present case, there is no material available on record to show that the assessee company has paid money in cash to the original seller of the land - Addition of Rs.42.5 lacs was deleted – Decided against the Revenue. Addition of Rs.10.00 lacs made by the Assessing Officer on account of unexplained loan – Held that:- M/s. L.N.Seth, HUF of the Karta and one of the Director of the assessee Company, has received the money from his minor children who had received the gift from NRE account. If the addition will have to be made, the same will have to be made in the hands of M/s. L.N.Seth, HUF, and certainly, not in the hands of the assessee company who has received the amount through banking channel from M/s L.N.Seth HUF, in whose account there was sufficient funds available - In the instant case, money has come at all the level through banking channel and creditworthiness and identity of the donors/creditors have been proved - All the three conditions, namely, identity, creditworthiness; and banking transaction have been proved in the instant case – Decided against the Revenue. Issues:1. Addition of Rs.42.50 lacs under 'undisclosed investments' in land purchase.2. Addition of Rs.10.00 lacs as unexplained loan.Analysis:Issue 1: Addition of Rs.42.50 lacs under 'undisclosed investments' in land purchase:The appellant-department filed an appeal under Section 260A of the Income Tax Act against the Tribunal's order deleting the addition of Rs.42.50 lacs made by the Assessing Officer. The appellant contended that the money deposited by the company in Mr. Nankau's account, used to purchase land and later resold to the company, should be treated as unexplained income. The appellant argued that Mr. Nankau was financially incapable before the land purchase, raising suspicions. However, the Tribunal found the source of the advance fully explained in the company's books, dismissing the addition made by the A.O. The Tribunal held that the money trail was legitimate, and no evidence suggested converting white money into black money. The Tribunal upheld the deletion of the addition, emphasizing the lack of material showing cash payment by the company to the original land seller.Issue 2: Addition of Rs.10.00 lacs as unexplained loan:Regarding the addition of Rs.10 lacs as a credit balance from M/s. L.N.Seth, HUF, the Tribunal overturned the A.O.'s decision. The department argued that the money trail involved unaccounted funds, linking back to a complex chain of transactions. However, the Tribunal found that the money flow through banking channels, involving M/s. L.N.Seth, HUF, and the company, demonstrated the identity, creditworthiness, and legitimate transactions. The Tribunal ruled that any addition should be in M/s. L.N.Seth, HUF's hands, not the company's. The Tribunal sustained the deletion of the addition, emphasizing the proven identity and creditworthiness of the donors/creditors.In conclusion, the High Court dismissed the department's appeal, ruling in favor of the assessee on both substantial questions of law. The Court upheld the Tribunal's decisions, emphasizing the legitimacy of the transactions and the lack of evidence supporting the department's claims.