2017 (11) TMI 2029 - HC - Income Tax

Unexplained cash credits u/s 68 - HELD THAT - As assessee is a broker and after payment report received, the CIT(A) has rightly observed in favour of the assessee. We are in complete agreement with the view taken by the CIT(A) and the Tribunal. Therefore, both the issues are answered in favour of assessee against the department.

Summary

Issues Involved:
1. Treatment of diary impounded under Section 133A as books of accounts for the purpose of making addition under Section 68.
2. Justification of the Tribunal in upholding the order of the CIT(A) and deleting the addition made on account of estimated interest income on cash credits.

Issue-wise Detailed Analysis:

1. Treatment of Diary Impounded Under Section 133A as Books of Accounts for Addition Under Section 68:

The appellant challenged the judgment of the Tribunal, which dismissed the department's appeal and allowed the assessee's cross-objection. The primary question was whether the diary impounded during survey proceedings under Section 133A could be treated as books of accounts for making an addition of Rs. 10,06,92,000 under Section 68. The Assessing Officer (AO) had observed that the assessee admitted the transactions recorded in the diary related to money given to different parties and claimed that the money was received from various lenders. However, the AO found the assessee's explanation unsatisfactory as the assessee failed to provide details establishing the identity, genuineness, and creditworthiness of the lenders. Consequently, the AO added Rs. 10,06,62,000 to the assessee's income under Section 68 for unexplained credits/investments and initiated penalty proceedings under Section 271(1)(c) for concealment of income.

2. Justification of Tribunal in Upholding CIT(A)'s Order and Deleting Addition of Estimated Interest Income:

The second issue was whether the Tribunal was justified in upholding the CIT(A)'s order, which deleted the addition of Rs. 1,01,55,994 made on account of estimated interest income on cash credits. The AO assumed that the assessee, engaged in financing, must have earned interest income on the undisclosed investment and estimated an interest rate of 12% per annum. The AO added Rs. 1,01,55,994 to the assessee's income as undisclosed interest income and initiated penalty proceedings under Section 271(1)(c). However, the CIT(A) accepted additional evidence, including confirmations from lenders, and forwarded them to the AO. The AO objected to the admission of additional evidence, arguing that the assessee had ample opportunity during the assessment proceedings to submit such details. Despite this, the Tribunal found that the entries in the diary reflected transactions between lenders and borrowers, with the assessee acting merely as a broker. The Tribunal noted that most lenders and borrowers confirmed the transactions, and in the absence of contrary evidence, upheld the CIT(A)'s order.

The Tribunal's decision was supported by various judicial precedents, emphasizing that the burden of proof lies with the Revenue to establish that the loan amounts were the assessee's income from undisclosed sources. The Tribunal concluded that the AO failed to provide direct or circumstantial evidence to prove that the amounts belonged to the assessee.

Conclusion:

The High Court dismissed the appeal, agreeing with the Tribunal's findings that the assessee acted as a broker and the AO failed to substantiate the additions. The court upheld the CIT(A) and Tribunal's decisions, answering both issues in favor of the assessee and against the department.