2018 (9) TMI 1698 - HC - Income Tax

Addition u/s 68 for having unexplained income - guienity of creditors - Held that - If the creditors are genuine and the transactions between those creditors and the assessee have been clean and honest, there is no need for the Court or any authority to try to unearth the source of the creditors funds from which he repaid the assessee. But when elements like collusion between the assessee and the so called creditors or setting up funds with the so called creditors to hold the assessee s money and to retransfer it to the assessee or any other kind of fraud is involved then the bona fide of the creditors has to be clearly established and their source of fund explained, on a charge under Section 68 of the said Act. In our opinion the learned tribunal has not gone into the issue in detail. It should have gone into it, to determine, whether the appellant had unexplained income. For those reasons we remand the matter back to the Tribunal to decide this issue afresh.

Summary

Issues:
- Interpretation of Section 260A of the Income Tax Act, 1961
- Application of Section 68 of the Income Tax Act, 1961

Interpretation of Section 260A:
The High Court of Calcutta, comprising Mr. I. P. Mukerji and Ms. Amrita Sinha, JJ., deliberated on the admissibility of a case under Section 260A of the Income Tax Act, 1961. The Court opined that the matter did not involve any substantial question of law warranting admission under this section. However, recognizing the appellant's grievance as significant, the Court decided to remand the case to the tribunal for a thorough examination of mixed questions of law and facts. The Court emphasized that it could not ignore the appellant's concerns to prevent injustice.

Application of Section 68:
The primary issue in this appeal pertained to the appellant being charged under Section 68 of the Income Tax Act for possessing unexplained income. The appellant's counsel argued that the source of funds from creditors was adequately explained to the authorities, and further investigation into the creditors' sources was unwarranted. However, the Court disagreed with this contention, stating that if there were suspicions of collusion or fraud between the appellant and the creditors, the bona fide nature of the creditors and the source of their funds must be clearly established. The Court criticized the tribunal for not delving deeply into this matter and emphasized the need for a detailed examination to determine whether the appellant indeed had unexplained income.

Remand and Disposition:
In light of the above, the High Court remanded the case back to the tribunal with instructions to address the issue in accordance with the law and provide a hearing opportunity to the concerned parties within three months. The tribunal was granted the discretion to refer the matter back to the assessing officer if deemed necessary. Additionally, the Court kept all points related to this issue open and set aside the part of the tribunal's order dealing with Section 68. Consequently, the appeal and the connected application were disposed of accordingly, marking the conclusion of the judicial proceedings.