2005 (8) TMI 29 - HC - Income Tax

High Court affirms Tribunal's decision on cheque additions, upholds Section 68 application.

The High Court upheld the Tribunal's decision, confirming the deletion of the addition for the first two cheques and the addition for the last two ... Addition u/s 68 for cash credit - where the assessee offers no explanation or the explanation offered are not satisfactory tax may be charged on such cash credit u/s 68 explanation by third party can't be entertained Issues Involved:1. Deletion of addition in respect of the first two cheques for Rs.50,000/- and Rs.1,50,000/-.2. Confirmation of addition in respect of the last two cheques for Rs.1,50,000/- and Rs.1,25,000/-.3. Applicability of Section 69 of the Income Tax Act, 1961, regarding unexplained investment.Issue-wise Detailed Analysis:1. Deletion of Addition in Respect of the First Two Cheques:The Tribunal deleted the addition of Rs.50,000/- and Rs.1,50,000/- based on the assessee's explanation and evidence. The Tribunal found that the first cheque dated November 28, 1974, for Rs.50,000/-, was used to purchase a draft for Rs.2,50,000/- in the name of Shri Jayant Turakhia, with part of the consideration coming from M/s Economic Traders (Gujarat) Pvt. Ltd. Similarly, the second cheque dated December 17, 1974, for Rs.1,50,000/-, was used to purchase a draft for Rs.2,00,000/-, with the balance amount coming from another source. The Tribunal concluded that the assessee's explanation was satisfactory and deleted the addition for these two cheques.2. Confirmation of Addition in Respect of the Last Two Cheques:The Tribunal confirmed the addition of Rs.1,50,000/- and Rs.1,25,000/- for the cheques dated February 17, 1975, and March 3, 1975, respectively. The Tribunal found that the third cheque for Rs.1,50,000/- was used to obtain a draft of the same amount in favor of Shri Mahendra Turakhia, with evidence showing that the proceeds were not received in cash but were diverted for purchasing the draft. Similarly, the fourth cheque for Rs.1,25,000/- was used for a draft in favor of Shri Mahendra Turakhia. The Tribunal noted that the evidence indicated the amounts were used for buying drafts and not received in cash as shown in the cash book.3. Applicability of Section 69 of the Income Tax Act:The Tribunal rejected the assessee's contention that the amount could be taxed only in assessment year 1975-76 under Section 69 of the Act. The Tribunal found that the addition was made in relation to credit entries in the cash book, and the revenue's argument was that the amounts were not received in cash but used for purchasing drafts. The Tribunal held that Section 68 was applicable as it was the starting point for inquiry into the credit entries, and the assessee's explanation was not satisfactory.Conclusion:The High Court upheld the Tribunal's findings and conclusions on all issues. The Tribunal was found to have correctly appreciated the evidence and exercised its discretion reasonably. The High Court answered the questions in favor of the revenue and against the assessee, confirming the deletion of addition for the first two cheques and the addition for the last two cheques. The Tribunal's rejection of the applicability of Section 69 was also upheld. The reference was disposed of with no order as to costs.