2016 (5) TMI 1174 - HC - Income Tax

High Court upholds Tribunal decisions on unexplained cash credits & interest paid under Section 40A(2)(b)

The High Court upheld the decisions of the Tribunal in appeals related to the disallowance of unexplained cash credits in the capital account of partners ... Addition u/s 68 - failure to produce evidence in respect of credit entries in the capital account of the partner - Held that:- Learned counsel for the assessee has produced a copy of the assessment order dated 20.12.2010 passed by the Assessing Officer, whereby the claim of the assessee has been accepted. The said order is taken on record. However, it is not disputed by the learned counsel for the revenue that after remand, the order was passed on 20.12.2010 accepting the version of the assessee. - Decided in favour of the assessee Addition on account of interest paid to M/s Saini Car Scheme under Section 40A(2)(b) - Held that:- The amount received by the assessee from Saini Car Scheme were for business purposes. The assessee advanced a sum of ₹ 17,60,053/- as loans to employees on which no interest was charged. The advancing of loan to the employees was for business purposes of the assessee. The factual matrix was neither controverted by the revenue nor any contrary material was produced before the Tribunal to show that the addition of ₹ 6,16,645/- was wrongly deleted.- Decided in favour of the assessee Issues Involved:1. Disallowance of unexplained cash credits in the capital account of partners.2. Deletion of addition of interest paid under Section 40A(2)(b) of the Act.Analysis:Issue 1: Disallowance of unexplained cash credits in the capital account of partnersThe High Court heard appeals ITA Nos. 705 of 2009 and 380 of 2010, as the issues were interconnected. The primary issue in ITA No. 705 of 2009 was the disallowance of Rs. 1.30 crore on account of unexplained credits in the capital account of partners for the assessment year 2003-04. The Tribunal remanded the matter to the Assessing Officer to verify the records and decide as per the provisions of the Act. The CIT(A) had earlier deleted the additions made by the Assessing Officer, and the Tribunal upheld this decision. The Tribunal allowed the assessee to furnish evidence to substantiate its claim. Subsequently, the Assessing Officer accepted the version of the assessee, leading to a decision against the revenue and in favor of the assessee.Issue 2: Deletion of addition of interest paid under Section 40A(2)(b) of the ActRegarding the deletion of the addition of Rs. 6,16,645/- on account of interest paid to M/s Saini Car Scheme under Section 40A(2)(b) of the Act, the Tribunal found that the amount received by the assessee from the scheme was for business purposes. The Tribunal noted that the assessee had advanced loans to employees for business purposes without charging interest. The Tribunal upheld the deletion of the addition as the revenue failed to provide contrary material to challenge the factual matrix presented by the assessee. The Tribunal dismissed the revenue's appeal, and the High Court upheld this decision, leading to a dismissal of ITA No. 705 of 2009 and ITA No. 380 of 2010.In conclusion, the High Court dismissed the appeals, upholding the decisions of the Tribunal regarding both issues. The disallowance of unexplained cash credits in the capital account of partners and the deletion of addition of interest paid under Section 40A(2)(b) of the Act were both decided in favor of the assessee, leading to the dismissal of the appeals.