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2018 (2) TMI 1738 - HC - Income TaxUnexplained cash credit u/s. 68 - ITAT deleted the addition - Held that - Tribunal has noted that AO had not conducted any inquiry with the shareholders, if at all any cash deposits were in their bank account - if at all unexplained cash deposits could be taxed in the hands of the shareholders - reliance was made on decision of the Supreme Court in the case of COMMR. OF INCOME TAX VERSUS M/S LOVELY EXPORTS (PVT) LTD 2008 (1) TMI 575 - SUPREME COURT OF INDIA . Disallowance of interest u/s 36(1)(iii) - Held that - The necessary break up of the fund flow statement and reconciliation of funds used in acquiring the capital assets was not available on record - thus Tribunal has remanded the issue before the Assessing Officer for fresh decision. Adjustment in the value of closing stock u/s. 145A - Tribunal deleted the addition - Held that - As observed by Tribunal assessee was paying Excise duty at a concessional rate and had therefore not claimed the benefit of CENVAT credit - increase of the valuation on account of CENVAT credit was unwarranted - hence there is no question of law arises - appeal of revenue is dismissed.
Issues:
1. Addition of unexplained cash credit under section 68 of the Income Tax Act. 2. Disallowance of interest under Section 36(1)(iii) of the Income Tax Act. 3. Addition on account of adjustment in the value of closing stock under section 145A of the Income-tax Act, 1961. Analysis: Issue 1: Addition of unexplained cash credit under section 68 of the Income Tax Act The Tribunal upheld the deletion of the addition of ?21.72 lakhs made by the Assessing Officer, citing lack of inquiry by the Assessing Officer regarding cash deposits in shareholders' bank accounts. The Tribunal reasoned that unexplained cash deposits should be taxed in the hands of the shareholders, drawing support from the Supreme Court's decision in CIT v. Lovely Exports P Limited. The deletion was confirmed, and the appeal was dismissed. Issue 2: Disallowance of interest under Section 36(1)(iii) of the Income Tax Act The Tribunal remanded the issue of ?10.43 lakhs deletion under Section 36(1)(iii) to the Assessing Officer for a fresh decision due to the absence of necessary details like a fund flow statement and reconciliation of funds used in acquiring capital assets. The lack of record led to no interference in this matter, and the Tribunal did not find grounds for overturning the decision. Issue 3: Addition on account of adjustment in the value of closing stock under section 145A of the Income-tax Act, 1961 The deletion of ?41.97 lakhs made by the Assessing Officer based on the valuation of closing stock was upheld. The CIT [A] found no tax implications, and the Tribunal noted that the assessee did not claim the benefit of CENVAT credit due to paying Excise duty at a concessional rate. As a result, the Tribunal concluded that the increase in valuation due to CENVAT credit was unwarranted, and no question of law arose. The appeal was dismissed based on this analysis. In conclusion, the High Court dismissed the Tax Appeal after considering and analyzing the issues related to unexplained cash credit, disallowance of interest, and adjustment in the value of closing stock under the Income Tax Act. The judgments of the Tribunal were upheld, and the reasons provided for the decisions were based on legal precedents and factual considerations.
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