2024 (6) TMI 1063 - HC - Income Tax

Addition u/s 68 - unexplained cash credit - unaccounted income surrendered during the survey and offered to tax - ITAT deleted addition holding that the assessee is entitled for the telescopic benefit of the income surrendered during the year to the cash deposit in Bank account treating the same as maturity proceeds of hundies during the year - HELD THAT - ITAT has accepted the fact that the respondent is entitled to the telescoping benefit of the surrendered income on which tax has been paid in the income tax return as the source which explains the cash deposited in the bank account, as there was a direct nexus between the cash deposited and the maturity proceeds of the hundis found during the survey proceedings. In coming to this conclusion the ITAT has also extracted the names of the persons to whom hundi loans were given as the hundis were seized during survey and the dates of maturity mentioned therein and the said recovery of loans was accepted as the source of deposits in the bank. Thus, it is apparent that the ITAT's finding of telescoping benefit of surrendered income vis- -vis subsequent bank deposits was reached only after due analysis of all the facts, circumstances, relevant documents and evidence, statements recorded during the survey. ITAT has accepted the contention of the respondent that the cash deposited in the bank accounts originated from the cash balance on hand as per the books of account. This cash balance was, in turn, derived from the loans recovered in cash from the individuals to whom the loans were advanced, against which hundis were seized from the assessee during the survey proceedings. ITAT, being the final authority for fact-finding, has adjudicated the issue comprehensively, taking into account the relevant facts, circumstances, documents/evidence, and judicial rulings. The finding of the ITAT as extracted, stand as matter of fact, with no discernible error of law. Moreover, the department has not highlighted or pointed out any factual inaccuracies or incorrect findings recorded by the ITAT. Consequently, the entitlement of the assessee to the telescopic benefit does not constitute any question of law, as the benefits of telescoping must be judged and allowed based on the facts and circumstances of the case, which has already been thoroughly examined by the ITAT. Benefit of telescoping has been approved in Aliasgar Anvarali Varteji 2018 (7) TMI 2340 - GUJARAT HIGH COURT wherein it was held that, when the entire unaccounted income discovered during the search was included in the overall disclosure, and the negative balance in the books of account was due to payments made from this unaccounted income, the assessee should not be denied the benefit of telescoping of the initial disclosure. The argument of the counsel for the appellant that the assessee has not been able to establish or produce the persons to whom hundi loans were given is answered by the ITAT by extracting the names of the persons to whom loans were given and coupled with the fact that these hundis were seized by the department itself leading to surrender of income in the return shows that the department itself has accepted these hundis as such and the income surrendered there-for and thus now it cannot turnaround and argue that these persons are not genuine. Moreover the argument that source of deposits in bank account is because of Vypam scam has not been proved at any stage by the department as has been observed by the ITAT. Substantial question of law or fact - Tribunal serves as the final authority for fact-finding, and to challenge such findings, there must be substantial evidence indicating a perverse finding of fact by the Tribunal. In the absence of any such substantial question having been raised to point out perversity in the order of the ITAT, it cannot be asserted that any question of law arises for consideration, let alone a substantial question of law, as envisaged under Section 260A of the Income Tax Act. As in the instant case no substantial question of law arises from the order of the Tribunal as the appellant has raised all the question of facts and have disputed the fact findings of the ITAT in the garb of substantial questions of law which is not permitted by the statute itself. No intervention is required in this appeal - Decided against revenue.

Summary

Issues Involved:
1. Whether the ITAT was justified in deleting the addition made by the AO u/s 68 of the Income Tax Act, 1961.
2. Whether the respondent is entitled to the telescoping benefit of the surrendered income to the cash deposits in the bank account.

Summary:

Issue 1: Justification of ITAT in Deleting Addition u/s 68
The appellant challenged the ITAT's decision to delete the addition of Rs. 7,34,79,097/- made by the AO u/s 68 on account of unexplained cash credit. The AO had added this amount as unexplained cash deposits in the respondent's bank account, suspecting it to be from the Vyapam scam. However, the ITAT found no evidence linking the cash deposits to the Vyapam scam and noted that the cash was deposited during the Financial Year 2011-12, whereas the Vyapam case proceedings related to the subsequent year. The ITAT observed that the respondent had surrendered Rs. 7 crores as unaccounted income during the survey, which was used to earn interest income through hundis, and this unaccounted income was offered to tax.

Issue 2: Entitlement to Telescoping Benefit
The ITAT accepted the respondent's contention that the cash deposits in the bank account were the maturity proceeds of hundis, which were made from the unaccounted income surrendered during the survey and offered to tax. The ITAT referred to various judicial pronouncements supporting the concept of telescoping, where an already taxed fund can be used to explain subsequent unexplained cash credits. The ITAT concluded that the respondent is entitled to the telescoping benefit of the surrendered income to the cash deposits in the bank account.

Conclusion:
The High Court found that the ITAT's findings were based on a thorough examination of the facts and were consistent with established legal principles. The department failed to demonstrate any factual inaccuracies or provide substantial evidence to challenge the ITAT's findings. The High Court held that no substantial question of law arose from the ITAT's order, and the appeal was dismissed accordingly. The ITAT's decision to grant the telescoping benefit and delete the addition made u/s 68 was upheld.