2010 (8) TMI 38 - HC - Income Tax

Unexplaind cash credit creditworthiness advancing of loans by the Directors / shareholders Held that - there is no rule of law that any person withdrawing cash from his own a/c about 1 or 2 months back cannot keep the same with them at their residence. The statement of one of the directors was recorded wherein he has stated on oath the purpose for which it was withdrawn and since that purpose could not materialize, the same was again deposited in bank and given to the assessee as loan. Additions made by the AO sustained by the CIT was correctly deleted by the Tribunal

Summary

Issues:
1. Appeal challenging the order of the Income Tax Appellate Tribunal regarding unexplained credit under Section 68 of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed by the Income Tax Department under Section 260A of the Income Tax Act, 1961, contesting the Tribunal's order dated 28th November, 2008. The Tribunal had deleted an addition of &8377; 12,50,000 on account of unexplained credit under Section 68 of the Act for the Assessment Year 2002-2003. Additionally, the matter of an additional &8377; 5,00,000 as unexplained credit was remanded back to the Assessing Officer by the Tribunal.

2. The counsel for the Revenue argued that the Tribunal erred in deleting the initial addition of &8377; 12,50,000 and in sending back the matter of the &8377; 5,00,000 addition for fresh adjudication. The Assessing Officer did not question the identity or creditworthiness of the Directors/shareholders providing the loan, but added the amount due to lack of proof of genuineness of the transaction.

3. The Assessing Officer's contention was that unaccounted money of the company was deposited in the Directors/shareholders' bank accounts and then taken as a loan. However, the Tribunal disagreed and stated that there was no evidence to support this claim. The Tribunal found that the loan transactions were genuine and set aside the addition of &8377; 12,50,000.

4. The Tribunal's decision was based on the fact that the Directors had withdrawn cash for a specific purpose, which could not materialize, leading to the cash being redeposited in the bank and given to the company as a loan. The Tribunal held that the tax authorities had not provided sufficient evidence to prove their claim of unaccounted money being involved in the transactions.

5. The Court recognized that the Tribunal's decision was a question of fact and that the Tribunal's conclusion was reasonable and not arbitrary. The Court found no substantial question of law in the appeal and dismissed it as lacking merit.

6. Regarding the second addition of &8377; 5,00,000, the Court agreed with the Tribunal's decision to remand the matter back to the Assessing Officer for the company to provide necessary confirmation. The Court concluded that this decision did not prejudice the Revenue and was not unreasonable.