2000 (1) TMI 1002 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 2,75,000 as unexplained cash credits.
2. Disallowance of interest on the unexplained cash credits.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 2,75,000 as Unexplained Cash Credits:

The assessee firm declared a total income of Rs. 3,90,000 for the assessment year 1987-88, which was assessed to Rs. 8,40,230 under section 143(3) of the Income-tax Act, 1961. During the assessment proceedings, the Assessing Officer (AO) observed new loans amounting to Rs. 7,55,000. Out of these, loans of Rs. 3,15,000 were treated as explained, while the remaining Rs. 4,40,000 were considered unexplained. Specifically, the AO made an addition of Rs. 4,15,000, including Rs. 2,70,000 from the Agarwal family, based on the Supreme Court decision in Jamnaprasad Kanhaiyalal v. CIT, as these returns were filed under the Amnesty Scheme.

In the first appeal, the Commissioner (Appeals) deleted the addition of Rs. 1,45,000 related to the Bhatia family but sustained the addition of Rs. 2,70,000 concerning the Agarwal family, concluding that the creditors lacked ostensible sources for the loans.

Upon further appeal, it was argued that the parents of the creditors, who were minors, appeared before the AO, confirmed the loans, and produced pass-books. However, since the returns were accepted under the Amnesty Scheme, the parents refused to provide additional details. The AO, relying on Jamnaprasad Kanhaiyalal's case, treated the amount as the assessee's income from undisclosed sources, which was upheld by the Commissioner (Appeals).

The Tribunal examined the facts and the context of the Supreme Court decision in Jamnaprasad Kanhaiyalal, noting that the 1985 Amnesty Scheme did not prevent the AO from inquiring whether the income declared genuinely belonged to the declarant. The Tribunal found that the credits in the assessee's books were from minors with no connection to the assessee firm. The parents confirmed the loans, and the returns were accepted under the Amnesty Scheme. The Tribunal concluded that the assessee had discharged its onus and that it was far-fetched to assume a benami declaration through an outsider. Therefore, the addition of Rs. 2,70,000 was unjustified and deleted.

2. Disallowance of Interest on the Unexplained Cash Credits:

As a consequence of treating the Rs. 2,70,000 as the assessee's income from undisclosed sources, the AO also disallowed the interest on these loans. Since the Tribunal deleted the addition of Rs. 2,70,000, the disallowance of interest on these loans was also deleted.

Conclusion:

The Tribunal allowed the appeal of the assessee, deleting the addition of Rs. 2,70,000 and the disallowance of interest thereon. The Tribunal emphasized that the assessee had discharged its onus and that the revenue failed to prove that the income declared by the minors under the Amnesty Scheme belonged to the assessee.