2018 (4) TMI 1004 - HC - Income Tax

Addition u/s 68 - Held that - Revenue urge that the money has been received from bogus shareholders then it is for the Revenue to proceed against them in accordance with law would not entitle the Revenue to invoke Section 68 while assessing the respondent for not explaining the source of its source. The impugned order of the Tribunal has raised a finding of fact that the respondent had discharged the onus which is cast upon it in terms of the pre-amended Section 68 of the Act by filing the necessary confirmation letters of the creditors, their Affidavits, their full address and their pan. The Tribunal has rendered a finding of fact which is not shown to be perverse. In any event, the question as proposed in law of the obligation to explain the source of the source prior to 1st April, 2013, Assessment Year 2013-14, stands concluded against the Revenue by the decision of this Court in Gangadeep Infrastructure (2017 (3) TMI 1263 - BOMBAY HIGH COURT).

Summary

Issues:
Interpretation of Section 68 of the Income Tax Act regarding the obligation to explain the 'source of the source' for unexplained cash credits.

Analysis:
The case involved an appeal challenging an order passed by the Income Tax Appellate Tribunal (the Tribunal) regarding the addition of ?1.65 crores under Section 68 of the Income Tax Act for Assessment Year 2010-11. The respondent-assessee had obtained a loan from M/s. Lorraine Finance Pvt. Ltd (LFPL). The Assessing Officer added the loan amount as unexplained cash credit, citing lack of proof of the transaction's genuineness and the source of funds. The Commissioner of Income-Tax upheld this decision in the First Appeal.

Upon further appeal, the Tribunal overturned the previous decisions, noting that the loan was indeed taken from LFPL, confirmed by the lender through various means. Additionally, a portion of the loan had already been repaid, and the remaining balance was also acknowledged. The Tribunal highlighted that the requirement to explain the 'source of the source' was introduced in 2013, after the assessment year in question. The Tribunal found that the respondent had fulfilled the onus under Section 68 by providing necessary documentation, as established in the case law Commissioner of Income Tax v. Lovely Exports (P.) Ltd.

The appellant contended that even without the 2013 amendment, the respondent should explain the source of the funds received. However, the Court referred to the decision in Commissioner of Income Tax v. Gangadeep Infrastructure Pvt. Ltd, which clarified that the proviso to Section 68, effective from 2013, did not apply to earlier assessment years. The Court emphasized that the Tribunal's finding of fact, confirming the respondent's compliance with pre-amended Section 68, was not unreasonable. The Court concluded that the issue of explaining the 'source of the source' before 2013 had been settled in previous judgments, dismissing the appeal on the grounds that it did not raise any substantial question of law.

In summary, the Tribunal's decision was upheld, emphasizing that the respondent had met the requirements under Section 68 for the assessment year in question, and the appellant's arguments were not deemed substantial enough to warrant further consideration.