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2014 (5) TMI 846 - AT - Income TaxAddition made u/s 68 of the Act - Unexplained cash credits - Application of section 41(1) of the Act Held that - In the first round of litigation the CIT(A) observed that provisions of section 41(1) cannot be applied - the addition can be made u/s 68 of the Act as unexplained cash credit - the view taken by the CIT(A) have not been challenged by the Revenue, they attained finality - the case deserves to be considered only in the backdrop of section 68 of the Act - the plea of the assessee that no fresh cash credit was taken in the previous year relevant to A.Y. 2002-03 was not disputed by the tax authorities - Whether the creditor is Hatima Textiles Ltd. or D souzas, the fact remains that there is no fresh cash credit in the year under consideration thus, addition cannot be made u/s 68 of the Act Decided in favour of Assessee.
Issues:
Addition of Rs.1,00,000/- under section 68 of the Act Analysis: The appeal was against the order passed by the CIT(A)-19, Mumbai for A.Y. 2002-03, concerning the addition of Rs.1,00,000/- upheld under section 68 of the Act. The assessee, a share trading company, declared a loss of Rs.12,37,966/- for the year. The AO noted a credit entry of Rs.1,00,000/- in the name of M/s. Hatima Textiles Ltd. in the Balance Sheet, which the assessee explained as received from individuals for a public issue that did not materialize. The AO treated this amount as income of the assessee due to the non-existence of liability, invoking section 41(1) of the Act. The CIT(A) upheld the addition under section 68 as an unexplained cash credit. The ITAT later remanded the matter back to the AO after new evidence was presented, indicating that the amount was collected for share application money. The AO added Rs.1,00,000/- under section 68, as the Revenue did not challenge the CIT(A)'s initial decision. The CIT(A) confirmed this action, stating that the refund to the individuals was not proven. The assessee argued that section 41(1) did not apply as no benefit was gained in earlier years, and section 68 was not applicable as the credit pertained to a previous year. The assessee maintained that the amount received was to be given to Hatima Textiles Ltd., but as the company dropped the share issue plan, it was shown as a creditor. The Revenue contended that there was no proof of payment to the individuals and questioned the existence of Hatima Textiles Ltd. The ITAT held that since the CIT(A)'s decision on section 41(1) was final and unchallenged, the case should be considered under section 68. As there was no fresh cash credit in the relevant year, the addition under section 68 was deemed unjustified. In conclusion, the ITAT allowed the appeal, emphasizing that no fresh cash credit existed in the relevant year, rendering the addition under section 68 invalid.
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