2017 (6) TMI 552 - HC - Income Tax

Accrual of income - unexplained deposits - Held that - Carry forward deposits of the previous year could not be included in the income. - Decided in favour of the assessee

Summary

Issues involved:
Appeal challenging Tribunal's order confirming CIT(A)'s decision on unexplained deposits and interest paid on loans. Substantial questions of law framed regarding additions made under section 68 of the Income Tax Act and interest paid on bogus loans.

Analysis:
1. The appellant challenged the Tribunal's decision confirming CIT(A)'s order allowing the assessee's appeal and dismissing the department's appeal. The substantial questions of law framed by the court focused on the justification of deleting additions made under section 68 of the Income Tax Act for unexplained deposits and interest paid on bogus loans.

2. The CIT(A) held that the appellant failed to produce books of accounts and relevant records sealed by the official liquidator, leading to the rejection of the appeal ground. Additionally, an addition of ?1,35,50,063/- was made due to unexplained deposits and interest income discrepancies, as the appellant could not substantiate the source of fixed deposits from the public.

3. The Tribunal upheld the CIT(A)'s decision, stating that fixed deposits in the form of unsecured loans accepted during the relevant accounting period could not be added under section 68 of the Income Tax Act. The Tribunal found no justification for the AO's addition of the entire amount of ?1,35,50,063/-, including carry-forward deposits, and agreed with the CIT(A)'s deletion of the addition related to unexplained deposits.

4. The appellant argued that in case of non-availability of books of accounts due to liquidation, the matter should have been remanded back to the Assessing Officer. However, the court, considering the assessment year 1996-97, agreed with the CIT(A)'s decision that carry forward deposits from the previous year should not be included in the income, based on the prevailing law at that time.

5. Ultimately, the court ruled in favor of the assessee and against the department, dismissing the appeal. The judgment highlighted the importance of considering the specific circumstances of the case, the legality of additions under the Income Tax Act, and the necessity for proper documentation and substantiation of financial transactions to avoid income discrepancies.