2016 (10) TMI 366 - HC - Income Tax

Court affirms validity of transaction under Income Tax Act, emphasizing bank records.

PRINCIPAL COMMISSIONER OF INCOME TAX-2 Versus Versus M/s HIRAL PHARMA LTD.

The High Court upheld the decisions of the Commissioner of Income Tax (Appeals) and the Tribunal, affirming the validity of the transaction involving an ... Addition made on account of unexplained cash credit /s 68 - failure to prove creditworthiness of the creditor - Held that:- The question pertains to an amount of ₹ 6.85 lacs, which the assessee claim, to have received by way of loan from one M/s.Pepilon Exports. After one round of remand, the assessee produced necessary documents such as the bank statement of Sarvoday cooperative bank of M/s.Pepilon Exports as well as that of the assessee. It was noticed that a cheque was issued by M/s.Pepilon Exports in favour of the assessee in January 1997 for the said sum of ₹ 6.85 lacs. On the same day, the amount was transferred to the account of the assessee which was also reflected in the assessee's bank statement. Commissioner of Income-tax (Appeals) and Tribunal therefore found that the entire transaction was a bank transaction. The Assessing Officer however, was of the opinion that since Sarvoday bank was in liquidation, further inquiry with the said Bank could not be made. Merely because bank has gone in liquidation would not be sufficient reason to doubt the bank transaction in support of which, there was ample other evidence produced by the assessee. - Decided in favour of assessee. Issues:Appeal against deletion of addition made on account of unexplained cash credit under section 68 of the Income Tax Act.Analysis:The High Court addressed the issue raised by the Revenue regarding the deletion of an addition made on account of unexplained cash credit under section 68 of the Income Tax Act. The case involved an amount of Rs. 6.85 lacs claimed by the assessee to have received as a loan from M/s.Pepilon Exports. The assessee provided necessary documents, including bank statements, to support the transaction. It was revealed that a cheque was issued by M/s.Pepilon Exports to the assessee, and the amount was transferred to the assessee's account on the same day, as evidenced by bank records. The Commissioner of Income Tax (Appeals) and the Tribunal concluded that the transaction was genuine and supported by bank records. However, the Assessing Officer raised concerns due to Sarvoday bank's liquidation, which hindered further inquiry.The High Court upheld the decisions of the Commissioner of Income Tax (Appeals) and the Tribunal, emphasizing that the facts presented by the assessee were undisputed. The Court noted that the mere liquidation of the bank should not cast doubt on the legitimacy of the bank transaction, especially when supported by ample other evidence provided by the assessee. The Court dismissed the tax appeal, affirming the validity of the transaction and rejecting the Revenue's challenge to the deletion of the addition made on account of unexplained cash credit under section 68 of the Income Tax Act.