2009 (3) TMI 473 - HC - Income Tax

Cash Credit- The assessing officer disallowed the loss on the ground that there was no material. On calling remand report from the Assessing Officer, the Assessing officer on remand in his report admitted that the identity of the parties and also that there was corresponding entries in the books of account. The Commissioner (Appeals) consequently allowed the appeal. The Tribunal deleted the additions made by the Assessing Officer towards unexplained cash credits. On appeal contending that the capacity to advance loan was not establishing and the Tribunal ought to have restored the matter to the Assessing officer for reconsideration. Held that- dismissing the appeal, that the books of account were available to the Assessing Officer and the books themselves would indicate the capacity of the party to advance loan. There was no further need on the part of the assessee to prove the capacity of the creditors. Thus, the reasoning adopted by the Tribunal was sustainable.

Summary

Issues:
- Whether the Tribunal was right in deleting the addition of Rs.7,41,17,495 made by the Assessing Officer towards unexplained cash credits despite lack of proof of creditworthiness of the creditors.
- Whether the Assessing Officer correctly disallowed the loss due to lack of material.
- Whether the Income-tax Appellate Tribunal's decision to dismiss the Revenue's appeal was justified.

Analysis:
1. The main issue in this case revolves around the deletion of the addition of Rs.7,41,17,495 by the Tribunal despite the Assessing Officer's concerns regarding unexplained cash credits. The Tribunal's decision was based on the presence of corresponding entries in the books of account and the identification of the parties involved. The Revenue contended that the capacity of the creditors to advance loans was not proven by the assessee, which should have been a crucial factor in assessing the legitimacy of the transactions.

2. The Assessing Officer's initial disallowance of the loss was based on the absence of material evidence. However, upon further review and submission of a remand report, it was acknowledged that the identity of the parties and corresponding entries in the books of account were established. This led to the Commissioner of Income-tax (Appeals) allowing the appeal, which was subsequently upheld by the Income-tax Appellate Tribunal.

3. The Revenue argued that the capacity of the creditors to advance loans was a critical aspect that needed verification, and the Tribunal should have remanded the matter back to the Assessing Officer for reconsideration. The Tribunal, in its order, highlighted that the Assessing Officer had the opportunity to verify the capacity of the creditors if there were any doubts.

4. The High Court, in its judgment, emphasized that the books of account themselves should indicate the capacity of the party to advance loans. Given the presence of relevant entries in the books, the Court found no additional burden on the assessee to prove the capacity of the creditors. Consequently, the Court upheld the Tribunal's decision to dismiss the Revenue's appeal, stating that the reasoning adopted was not devoid of merit and, therefore, the appeal was dismissed.