1988 (7) TMI 134 - AT - Income Tax

Dispute over cash credits for hotel project resolved by Income Tax authorities

INCOME TAX OFFICER. Versus SURESH KALMADI.

The case involved a dispute over cash credits claimed as borrowings from outsiders for a hotel project. The Income Tax Officer (ITO) disallowed the ... - Issues Involved:1. Whether the material on record is sufficient to warrant acceptance of the claim of borrowing.Summary:Issue 1: Sufficiency of Material to Warrant Acceptance of Borrowing ClaimThe case involved a dispute over cash credits where the explanation was that the cash credits represented borrowings from outsiders. The assessee, an individual deriving income from a service station and catering establishment, was involved in a hotel project and claimed to have borrowed money from four creditors to finance the project. During a search of the assessee's premises, certain diaries were found recording payments made to a Mr. Bhagde. The Income Tax Officer (ITO) questioned the genuineness of these borrowings, citing discrepancies and manipulations in the creditors' account books, the low rate of interest, and the lack of security or receipts. The ITO concluded that the borrowings were not genuine and added the amount to the assessee's income from undisclosed sources.On appeal, the Commissioner(A) disagreed with the ITO, stating that the assessee had provided sufficient evidence, including confirmation letters from creditors and their account books, to substantiate the borrowings. The Commissioner(A) held that the ITO's conclusions were based on conjectures and irrelevant considerations, and deleted the addition.The learned Judicial Member agreed with the Commissioner(A), emphasizing that the assessee had proved the identity, credit-worthiness, and genuineness of the transactions. He noted that even if there were discrepancies in the creditors' books, the evidence provided by the assessee was sufficient to support the borrowings. The Judicial Member also pointed out that the rate of interest and the lack of receipts were not significant enough to discredit the assessee's version.However, the learned Accountant Member supported the ITO's view, stating that the borrowings were a fictitious story. He highlighted the discrepancies and manipulations in the creditors' books, the improbability of the creditors lending large sums without security, and the lack of personal knowledge between the broker and the assessee. He concluded that the transactions were not genuine and upheld the ITO's addition.The third Member, after considering the evidence and arguments, sided with the Judicial Member. He noted that the Department's suspicion was based on the assessee's initial non-committal responses during the search, but found that the assessee had provided sufficient evidence to support the borrowings at the first opportunity given. He emphasized that the creditors had consistently admitted to lending the money, and the manipulations in their books did not necessarily disprove the loans. He concluded that the evidence on record was sufficient to warrant acceptance of the claim of borrowings.The matter was referred back to the regular Bench for disposal of the appeal in accordance with the majority opinion.