1990 (6) TMI 116 - AT - Income Tax

Summary

Issues:
1. Disallowance of cash credits in the names of individuals by the ITO.
2. Disallowance of interest claimed on the credits.
3. Disallowance of counsel fee as an allowable deduction.
4. Lack of linkage between withdrawals and deposits by the assessee.
5. Determination of the genuineness of the transactions.

Analysis:
1. The ITO disallowed cash credits of Rs. 16,000 in the names of two individuals, which were not accepted as genuine. Additionally, interest claimed on these credits was disallowed. The AAC upheld the disallowance, citing a lack of linkage between withdrawals and deposits by the assessee.

2. The assessee contended that the withdrawals made by the individual from a related concern prior to the deposits with the assessee firm established creditworthiness. The Tribunal noted that the evidence must be weighed based on probabilities, not strict evidence, and found the explanation plausible. The genuineness of the transactions was supported by withdrawals and repayments under the individual's signature, leading to the deletion of the addition of Rs. 16,940.

3. Regarding the disallowance of counsel fee, the Tribunal agreed with the assessee that the liability accrued in the year of settlement, citing relevant case law. As the liability for counsel fee was settled in the current year, the disallowance of Rs. 2,400 was deleted.

4. The Departmental Representative argued that the withdrawals made by the individual must have been spent or invested elsewhere, questioning the credibility of maintaining a significant amount without earning interest. However, the Tribunal found the explanation provided by the assessee regarding the utilization of the withdrawn funds for loans and business purposes reasonable, leading to the deletion of the disallowance.

5. In conclusion, the Tribunal allowed the appeal, overturning the disallowances of cash credits and counsel fee. The genuineness of the transactions was established based on the evidence presented, emphasizing the importance of weighing probabilities in such cases.