2025 (8) TMI 1191 - HC - Income Tax

Appeal dismissed: s.68 cash credits satisfactorily explained with documents; Rule 64A remand report upheld concurrent factual findings

Pr. Commissioner of Income Tax I Versus M/s Parametric Trading Pvt. Ltd.

Pr. Commissioner of Income Tax I Versus M/s Parametric Trading Pvt. Ltd. - 2025:MPHC - IND:22641 ISSUES PRESENTED AND CONSIDERED 1. Whether the Tribunal was justified in law in sustaining deletion of additions made under Section 68 of the Income-tax Act for large bank credits on the ground that the assessee had discharged the initial onus of proving identity, creditworthiness and genuineness of creditors/transactions. 2. Whether the Tribunal erred in law by applying form-over-substance reasoning (i.e., accepting banking-channel entries and documentary material) and thereby neglecting the principle that 'substance will prevail over form' when assessing genuineness of receipts under Section 68. 3. Whether the Tribunal was justified in deleting an addition where the Assessing Officer had re-characterised declared short-term capital gain as business income for want of primary contemporaneous evidence (contract notes, Demat statements), i.e., was the re-characterisation justified and the Tribunal's contrary conclusion sustainable. 4. Whether the matters raised constitute substantial questions of law amenable to interference by this Court in the presence of concurrent findings of fact by the Assessing Officer, the Commissioner (Appeals) and the Tribunal, including the effect of remand proceedings under Rule 64A and the reception of belated documents on appeal. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Burden under Section 68: Legal framework - Section 68 requires that where any sum is found credited in the books as share capital, loans, or unexplained cash credits, the assessee must explain the nature and source; the initial burden lies on the assessee to prove identity, creditworthiness and genuineness of the creditor/receipt. Rule 64A permits the appellate authority to call for remand reports from the Assessing Officer; Rule 46A deals with admission of additional evidence. Issue 1 - Precedent Treatment - The judgment does not cite or overrule any authority; rather, it treats the statutory principle in Section 68 as established but emphasises that assessment of proof and credibility are essentially findings of fact for the authorities below. Issue 1 - Interpretation and reasoning - The Court recognised the statutory initial onus under Section 68 but observed that the Commissioner (Appeals) exercised powers under Rule 64A to call for a remand report, following which the Assessing Officer accepted documentary material and confirmed entries were recorded and related to business advances/sales. The Tribunal conducted comprehensive consideration of submissions and the remand report and found no justification to interfere. The Court emphasised that these were concurrent findings of fact - on the existence of bank statements, ledgers, confirmations and remand report conclusions - and that the Revenue's attack in essence raised factual grievances about sufficiency and timing of proof rather than pure questions of law. Issue 1 - Ratio vs. Obiter - Ratio: Concurrent findings that the assessee had produced documents and that the Assessing Officer's remand report accepted the genuineness and accounting of transactions are factual conclusions which are not to be disturbed in absence of perversity. Obiter: Remarks on the limits of accepting belated documents without contemporaneous verification are discussed but not applied to set aside the concurrent factual findings. Issue 1 - Conclusion - The Tribunal was justified in sustaining deletion of the additions under Section 68 because the appellate fact-finding (including the remand report) accepted the documentary explanations; the Court declined to reappraise these concurrent findings as they are questions of fact and no perversity is shown. Issue 2 - Substance over form and banking-channel entries: Legal framework - The principle that 'substance will prevail over form' is a recognised maxim in tax law; banking-channel transactions can be an indicium of genuineness but do not conclusively establish it. The assessment must examine corroborative evidence and commercial logic. Issue 2 - Precedent Treatment - The Court did not displace the principle that substance prevails over form; rather it noted that the Assessing Officer, on remand, accepted that the entries were part of regular business transactions and were recorded in books with corroborative bank entries and confirmations. Issue 2 - Interpretation and reasoning - The Court balanced the statutory caution against treating mere banking entries as conclusive proof with the practical outcome that where books, bank statements, confirmations and a remand examination establish the commercial reality of transactions, appellate authorities may legitimately delete additions. The Tribunal's acceptance of bank entries and books as establishing regular business transactions was a factual determination reached after remand, not a pure legal error of applying form over substance. Issue 2 - Ratio vs. Obiter - Ratio: Acceptance that evidence of banking entries together with books, ledgers and confirmations may suffice to discharge the assessee's onus under Section 68 when examined and accepted on remand. Obiter: General caution that routing through banking channels alone cannot ipso facto render transactions genuine, a matter for factual determination. Issue 2 - Conclusion - The Tribunal did not legally err in upholding deletion based on documentary and bank evidence; the contention that reliance on banking entries alone invalidates the deletion raised a factual challenge which the Court declined to entertain in the face of concurrent factual findings. Issue 3 - Re-characterisation of Short-Term Capital Gain as Business Income: Legal framework - Nature of receipts (capital gain vs business income) depends on transactional evidence (contract notes, Demat statements, balance-sheet treatment) and surrounding facts; Assessing Officer may re-characterise when contemporaneous evidence is absent or transactions are indicative of trading activity. Issue 3 - Precedent Treatment - No binding authorities were cited in the judgment; the Tribunal and CIT(A) relied on documentary evidence (contract notes, investment records, balance sheet showing shares as investments) and found that the amount was already declared as short-term capital gain. Issue 3 - Interpretation and reasoning - The Tribunal and CIT(A) concluded that the Assessing Officer erred in treating the declared short-term capital gain as business income because the assessee's return and supporting documents (contract notes, bank records, balance-sheet entries) showed the amount as capital gain and its re-inclusion would amount to double taxation. The Court treated this as a concurrent factual determination corroborated by documents, and therefore not a substantial question of law for interference. Issue 3 - Ratio vs. Obiter - Ratio: Where declared capital gains are supported by contract notes, bank records and balance-sheet treatment as investments, re-characterisation by AO may be unsustainable; concurrent appellate findings to that effect are binding absent perversity. Obiter: The importance of producing primary contemporaneous evidence at assessment stage remains emphasised but did not lead to appellate reversal here. Issue 3 - Conclusion - The Tribunal correctly sustained deletion of the addition relating to short-term capital gain as the declared nature was supported by documentary evidence and the AO's re-characterisation was not upheld on appeal; the Court declined to disturb concurrent findings. Issue 4 - Existence of substantial questions of law and effect of remand/late documents - Legal framework: The Court may interfere on substantial questions of law; remand under Rule 64A and admission of additional evidence under Rule 46A are procedural mechanisms that permit fact-finding to be revisited on appeal. Where appellate authorities call for remand and Assessing Officer on remand accepts evidence, concurrent findings arise. Issue 4 - Interpretation and reasoning - The Court held that the Revenue's contentions essentially raised questions of fact (sufficiency/credibility of belated documents, acceptance of remand report) rather than pure questions of law. The Commissioner (Appeals) legitimately exercised Rule 64A powers to call for a remand, and the Assessing Officer's remand report favourable to the assessee superseded the earlier AO view. The Tribunal's affirmation of these factual conclusions did not present a substantial question of law warranting interference. Issue 4 - Ratio vs. Obiter - Ratio: Concurrent factual findings based on remand and documentary acceptance do not constitute substantial questions of law merely because the Revenue disagrees; appellate interference requires shown perversity or legal error. Obiter: Observations that belated production may be susceptible to scrutiny if recorded as unverified are noted but were not applied to overturn the factual conclusions. Issue 4 - Conclusion - The Court concluded that no substantial question of law arises; the appeal was dismissed because the matters were factual, the remand procedure was properly invoked and concurrent findings by CIT(A) and Tribunal stood unimpeached by perversity or legal error.