2006 (11) TMI 156 - HC - Income Tax

Summary

Issues Involved:
1. Deletion of income assessed u/s 68 of the Income-tax Act, 1961.
2. Evidence and material for the genuineness of the loan.
3. Assessment of income u/s 68 for the assessment year 1985-86.
4. Redetermination of business income by the Tribunal.

Summary:

Issue 1: Deletion of income assessed u/s 68 of the Income-tax Act, 1961
The Revenue challenged the Tribunal's decision to delete the addition of Rs. 61,85,000 as income assessed u/s 68. The Tribunal had accepted the assessee's claim that the loan was genuine, despite expressing disbelief and suspicion about the transaction. The High Court found that the Tribunal's acceptance of the transaction based on the "excise contract" was unacceptable and lacked material evidence. The Court held that the findings of the Tribunal regarding the genuineness of the transaction were to be set aside.

Issue 2: Evidence and material for the genuineness of the loan
The Tribunal had accepted the genuineness of the loan from Sri Appa Rao, despite his contradictory statements and lack of capacity to lend such a huge amount. The High Court noted that the Tribunal's findings were based on surmises and conjectures, and there was no acceptable material to support the genuineness of the loan. The Court emphasized that large sums of money involved required credible evidence, which was absent in this case.

Issue 3: Assessment of income u/s 68 for the assessment year 1985-86
The High Court agreed with the Assessing Officer and the Appellate Commissioner that the assessee failed to prove the source and nature of the cash credits satisfactorily. The Court referred to several Supreme Court judgments, including Jamnaprasad Kanhaiyalal v. CIT, A. Govindarajulu Mudaliar v. CIT, and Sumati Dayal v. CIT, which established that the burden of proof lies on the assessee to explain the cash credits. The Court concluded that the income was rightly assessed u/s 68 as income from undisclosed sources.

Issue 4: Redetermination of business income by the Tribunal
The Tribunal had redetermined the business income at Rs. 1 lakh as against Rs. 5 lakhs assessed by the Assessing Officer. The High Court found fault with the Tribunal's decision, stating that the Tribunal failed to consider the material facts and laws applicable to the case. The Court upheld the Assessing Officer's determination of business income at Rs. 5 lakhs.

Conclusion:
The High Court accepted the appeal, answered the questions of law in favor of the Revenue, and set aside the order of the Tribunal. The Court emphasized the need for credible evidence to support the genuineness of large cash transactions and upheld the assessment of income u/s 68 of the Income-tax Act, 1961.