1992 (8) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal's findings regarding the assessee's cash payment for shares and the source of funds were perverse and based on no materials.
2. Whether the Tribunal's conclusion that the Income-tax Officer was justified in treating the cash brought into the books for share purchase as unexplained was vitiated.
3. Whether the Tribunal's order upholding the addition of Rs. 11,20,000 as income from undisclosed sources was perverse due to non-consideration of the assessee's contentions.
4. Whether the sum of Rs. 11,20,000 could be treated as the assessee's income from undisclosed sources.

Summary:

Issue 1:
The Tribunal's findings that the assessee had paid cash for the purchase of shares and could not show how it was provided, and that the concern from whom the loan was taken did not have enough to lend, were challenged as perverse and based on no materials. The Tribunal held that the assessee's argument to disregard the entries in the books because they were false was not acceptable. The Tribunal concluded that the cash entries indicated that the assessee had paid cash for the shares, but the source of the cash was unexplained.

Issue 2:
The Tribunal's conclusion that the Income-tax Officer was justified in treating the cash brought into the books for the purchase of shares as unexplained was upheld. The Tribunal noted that the assessee's argument about the entries being mere adjustments to comply with rule 58A of the Companies Act was not convincing. The Tribunal agreed with the Income-tax Officer's finding that the source of funds was unexplained.

Issue 3:
The Tribunal's order upholding the addition of Rs. 11,20,000 as the assessee's income from undisclosed sources was challenged on the grounds of non-consideration of various contentions advanced by the assessee. The Tribunal found that the assessee's representative referred to rule 58A, which did not exist, and that the document from the Reserve Bank was not produced before the authorities below. The Tribunal agreed with the lower authorities that the entries were not merely adjustment entries and that the source of funds was unexplained.

Issue 4:
The sum of Rs. 11,20,000 was treated as the assessee's income from undisclosed sources. The Tribunal noted that the transactions were recorded in the cash book through a circuit, but no cash passed at any stage. The Tribunal found that the entries were made to comply with the Reserve Bank's directions to reduce the borrowing ratio, but the cash entries were not justified as there was no actual cash involved. The Tribunal concluded that the assessee failed to prove the source of funds for the purchase of shares.

Conclusion:
The High Court answered all the questions in the affirmative, in favor of the assessee, and against the Revenue. The Court found that the transactions were mere book entries without actual cash flow and that the assessee took over the liability of the non-financial companies in exchange for shares. The Tribunal's findings were held to be misdirected, and the addition of Rs. 11,20,000 as unexplained cash credit was not justified. There was no order as to costs.