2014 (2) TMI 433 - HC - Income Tax

Disallowance of Interest u/s 40(b) of the Act Interest paid to Partners Deletion made as unexplained cash credits Survey u/s 133A of the Act Held that - The assessee has explained the source of the money in its hands and has, therefore, also explained the source of meeting the expenditure - The addition made by the Income-tax Officer, was, therefore, rightly deleted by the Commissioner of Income-tax (Appeals) - Dr. Gaur Hari Singhania has failed to establish that he has refunded the amount, the challenge to the finding is implicit - even if it is assumed that the question contains a challenge to the finding of the Tribunal, it is sufficient to say that the findings recorded by the Tribunal are based on the material and oral statement of Dr. Gaur Hari Singhania and this Court, while deciding the reference, shall not sit in appeal against the said findings Decided in favour of Assessee. Justification of admitting oral evidences Burden to prove - Whether the ITAT was justified in accepting the oral evidence of the assessee and submissions against the material evidence in the form of books of accounts Held that - The burden of proof is not a fixed concept it keeps on shifting from stage to stage - The burden of assessee was discharged when the statement was recorded of the cashier and of Dr. Gaur Hari Singhania on the same day, when the survey was made, subsequently, oral statement was made by Dr. Gaur Hari Singhania, giving the date of refunding - The authority has to take decision on the basis of evidence on record - The Tribunal has returned the findings after considering the evidence on record Decided in favour of Assessee.

Issues Involved:
1. Deletion of addition of Rs. 22,23,643/- as unexplained cash.
2. Adoption of Annual Letting Value (A.L.V.) of the property "Ganga Kutir."
3. Acceptance of oral evidence over material evidence in the form of books of account.
4. Legality of adding back interest paid to partners in various capacities.
5. Determination of A.L.V. of the firm's property "J.K. Kothi."

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 22,23,643/- as Unexplained Cash:
The Tribunal had to determine whether the addition of Rs. 22,23,643/- made by the Income Tax Officer as unexplained cash was justified. The Tribunal found that the cash shortage identified during the survey was explained by the fact that Dr. Gaur Hari Singhania, a partner in the firm, had taken the money for safekeeping and returned it the following day. The Tribunal noted that the Income Tax Officer himself had acknowledged the credibility of Dr. Singhania's statement made during the survey. The Tribunal concluded that the assessee had satisfactorily explained the source of the cash and the subsequent expenditure, thus justifying the deletion of the addition. The High Court upheld this finding, emphasizing that the Tribunal's findings were based on credible evidence and could not be overturned in a reference.

2. Adoption of Annual Letting Value (A.L.V.) of the Property "Ganga Kutir":
The Tribunal had adopted an A.L.V. of Rs. 20,000/- for the property "Ganga Kutir," which was contested by the department. The High Court referred to a previous Division Bench judgment dated 06.07.2005, which had already decided a similar issue in favor of the assessee. The High Court reiterated that the A.L.V. determined by the Tribunal was justified and consistent with the earlier judgment.

3. Acceptance of Oral Evidence Over Material Evidence in the Form of Books of Account:
The Tribunal accepted the oral statements of the cashier and Dr. Gaur Hari Singhania, which were recorded during the survey, over the material evidence in the form of books of account. The High Court noted that the burden of proof is not fixed and shifts during different stages of the proceedings. The Tribunal's decision to accept the oral evidence was based on the credibility of the statements made at the time of the survey. The High Court found no error in the Tribunal's approach and upheld its findings.

4. Legality of Adding Back Interest Paid to Partners in Various Capacities:
The Tribunal had to decide whether the interest paid to partners, not in their capacity as partners but in other capacities as depositors, amounting to Rs. 3,35,346/-, should be added back to the firm's income while computing disallowance under Section 40(b) of the Income Tax Act. The High Court referred to its earlier judgment dated 06.07.2005, which had decided a similar issue in favor of the assessee. The High Court confirmed that the Tribunal was correct in its decision to add back the interest.

5. Determination of A.L.V. of the Firm's Property "J.K. Kothi":
The Tribunal had determined the A.L.V. of the property "J.K. Kothi" at Rs. 11,250/-, against the A.L.V. determined by the Commissioner of Income Tax (Appeals) at Rs. 8,075/-. The High Court again referred to the Division Bench judgment dated 06.07.2005, which had addressed a similar issue, and upheld the Tribunal's determination of the A.L.V.

Conclusion:
The High Court answered all the questions in favor of the assessee and against the revenue. The Tribunal's findings regarding the deletion of the addition of unexplained cash, the adoption of A.L.V., the acceptance of oral evidence, and the addition of interest paid to partners were upheld as being based on credible evidence and consistent with previous judgments. The reference was answered accordingly.

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