High Court dismisses Revenue's appeal on unexplained cash credits, upholds Tribunal's decision.

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Case Name:

Commissioner of Income Tax vs. K. Thirumoorthy (High Court of Madras)

T.C.(A).No.424 of 2014

Date: 22nd December 2014

Key Takeaways

- The High Court upheld the decisions of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, which had verified and confirmed the genuineness of the payments made by the assessee.

- The case was dismissed as it involved a pure question of fact, with no substantial question of law arising for consideration.

- The decision reinforces the principle that higher courts should not interfere in matters of fact that have been thoroughly verified by lower authorities.

Issue

Whether the Tribunal was correct in confirming the order of the Commissioner of Income Tax (Appeals) to delete the addition made towards unexplained cash credit to the extent of Rs.41,38,474/- based on the material available.

Facts

- The respondent, K. Thirumoorthy, is an individual trading in old bottles.

- For the assessment year 2008-09, the Assessing Officer added Rs.47,58,616/- as unexplained credits.

- The Commissioner of Income Tax (Appeals) directed the deletion of Rs.41,38,474/- after verifying payments made through NEFT/RTGS.

- The Revenue appealed to the Income Tax Appellate Tribunal, which confirmed the Commissioner’s order.

- The Revenue then appealed to the High Court.

Arguments

- Revenue's Argument:

The Tribunal erred in confirming the deletion of the addition towards unexplained cash credits and questioned the genuineness of the payments.

- Assessee's Argument:

The payments were genuine and made through banking channels, as verified by both the Commissioner of Income Tax (Appeals) and the Tribunal.

Key Legal Precedents

- The case did not explicitly cite other legal precedents but focused on the verification of facts by the Commissioner of Income Tax (Appeals) and the Tribunal.

Judgement

The High Court dismissed the Revenue's appeal, stating that the case involved a pure question of fact, which had been verified and confirmed by both the Commissioner of Income Tax (Appeals) and the Tribunal. No substantial question of law arose for consideration.

FAQs

Q1: What was the main issue in this case?

A1: The main issue was whether the Tribunal was correct in confirming the deletion of the addition made towards unexplained cash credits based on the material available.

Q2: Why did the High Court dismiss the appeal?

A2: The High Court dismissed the appeal because it involved a pure question of fact, which had been thoroughly verified by the Commissioner of Income Tax (Appeals) and the Tribunal, leaving no substantial question of law for consideration.

Q3: What does this decision mean for the parties involved?

A3: The decision means that the assessee, K. Thirumoorthy, is not liable for the addition of Rs.41,38,474/- as unexplained cash credits, as the payments were verified and found to be genuine.

Q4: What is the significance of this case?

A4: The case underscores the principle that higher courts should not interfere in matters of fact that have been thoroughly verified by lower authorities, unless there is a substantial question of law involved.

Q5: Did the High Court find any procedural errors in the lower authorities' decisions?

A5: No, the High Court did not find any procedural errors and noted that the issue of procedural compliance under Rule 46A (of Income Tax Rules, 1962) was not raised in the appeal before the Tribunal.

1. This Tax Case (Appeal) is filed by the Revenue challenging the order of

the Income Tax Appellate Tribunal for the assessment year 2009-10, raising

the following substantial questions of law:

(i) Whether under the facts and circumstances of the

case, the Tribunal was right in confirming the order of

the CIT(A) directing the assessing officer to delete the

addition made towards unexplained cash credit to the

extent of Rs.41,38,474/-?

(ii) Whether based on the material available before it, the

Tribunal could have arrived at a conclusion that the

assessee had made payments to the creditors in the

subsequent year and that the credits are genuine?"

2. The respondent/assessee is an individual trading in old bottles. In

completing the assessment of income for the assessment year 2008-09

under Section 143(3) (of Income Tax Act, 1961), the Assessing Officer added a

sum of Rs.47,58,616/- as unexplained credits holding that the credits

appearing in the name of various parties as unconfirmed balances.

Aggrieved by the said order of the Assessing Officer, the assessee preferred

an appeal before the Commissioner of Income Tax (Appeals), who partly

allowed the appeal directing the Assessing Officer to delete the addition to

the extent of Rs.41,38,474/-. While doing so, the Commissioner of Income

Tax (Appeals) took note of the payments made by the assessee to the

creditors by NEFT/RTGS through the State Bank of India,

Narasimhanaickenpalayam branch, the details of which are set out in

paragraph 7 of the order of the Commissioner of Income Tax (Appeals).

Aggrieved by the said order of the Commissioner of Income Tax (Appeals),

the Revenue preferred an appeal before the Income Tax Appellate Tribunal.

3. The Tribunal extracted the details of the trade creditors, which was

extracted by the Commissioner of Income Tax (Appeals). For better clarity,

the same is reproduced below:

"6. I have gone through the submissions made by the

appellant and also the order of the Assessing Officer. During the

course of assessment proceedings, the Assessing Officer verified

the balances of sundry creditors. The Assessing Officer issued

letters to the parties as per the addresses mentioned in the

confirmation letter. The confirmations were received from

Sri.Karpaga Vinayaga Bottle Co., Salem, M/s.Vijay Krishnan

Enterprises, Chennai and Supreme Bottle Suppliers, Coimbatore.

Some of the parties did not respond to the letters issued by the

Assessing Officer. The Assessing Officer asked the assessee to

prove the genuineness of these credits by furnishing the bank

statements to subsequent year reflecting the payments. The

appellant submitted the bank statement of subsequent year and

A.O. on verification stated in the order "Though there are fund

transfer from these accounts, there is no clear indication as to

whom these funds were transferred. The A.O. also received

confirmation letters from M/s.Varsha Bottle Suppliers, ARavind

Traders, Kubera Trading Service and Shajid Traders. On

observing these confirmation letters the A.O. doubted the

genuineness of these confirmation letters. The A.O. after

verification of all the details summarized the unconfirmed balance

of 14 creditors amounting to Rs.47,58,616/- and made the

addition.

7. During the course of appellate proceedings, the AR submitted

the details creditor wise showing the payments made to the trade

creditors by NEFT/RTGS through the SBI,

Narasinhanaickenpalayam branch.

(i) Aravind Traders: In this case, the amount disallowed by

Assessing Officer is Rs.7,54,572/-. The appellant furnished the

details of payments made to the creditor in the subsequent year

2009-10. Copies of paid cheque with bank stamp and also the

bank statements showing the debits were furnished. From all

these details, it is clear that the outstanding balances were paid

by the appellant. Hence, the addition has to be deleted.

(ii) Balaji Enterprise: The amount disallowed by the Assessing

Officer as outstanding balance was Rs.6,17,169/-. The appellant

on 26.6.2009 has paid Balaji Enterprise through RTGS transfer,

an amount of Rs.7,00,050/-. Since these payments are reflected

in the banks statements, the addition is to be deleted.

(iii) Dharshini Bottles: The addition on account of outstanding

balance is Rs.1,01,397/-. In this case also, the appellant paid the

trade creditor on 26.6.2009 by RTGS transfer. The addition has

to be deleted.

(iv) Jayarahava Traders: The addition made in this case was

Rs.56,272. The appellant submitted that on 30.12.2009, an

amount of Rs.31,200/- was paid through banking channels.

Similarly, the appellant submitted that an amount of Rs.18,000/-

was paid by cash on 5.1.2010 and 16.1.2010. However, in the

ledger extracts, these cash deleted and the balance amount

added is confirmed.

v) Kubera Trading Service: The addition made was

Rs.11,42,776/-. The appellant submitted the details of bank

account reflecting the RTGS transfer during the financial year

2009-10. On verification of these details, the addition made by

the Assessing Officer needs to be deleted.

vi) Pandian Bottle Stores: In this case, the addition made was

Rs.64,816/-. The appellant furnished cheque details for payment

of these amount on 13.4.2009. Hence, the addition is to be

deleted.

vii) R.B.I. Bottles: The addition made by the Assessing Officer

was Rs.57,200/-. The appellant submitted that the amounts were

paid by cash on 6.4.2009, 17.4.2009 and 4.5.2009. However,

the ledger copy furnished did not show the payments on these

dues. Hence, genuineness could not be proved by the AR. The

addition is confirmed.

viii) Shajith Traders: The addition made was for Rs.7,19,166/-.

The appellant filed the details of payments made by RTGS

transfer along with the bank statement. The appellant paid on

various dates through banking channels in the financial year

2009-10. Hence, the addition made by the Assessing Officer is to

be deleted.

ix) In the case of Southern Bottle Suppliers and Sapthagiri Bottle

Suppliers, the appellant could not prove with sufficient proof

regarding the cash payments made by him to the traders. The

addition of Rs.60,320/- and 72,301/- is confirmed.

x) Bottle Suppliers: The addition made on account of sundry

creditors was Rs.4,05,248/-. The appellant submitted that during

the financial year 2010 and 2011, the payments were made by

cash. However, the appellant could not produce further

evidences to prove the genuineness of these transactions.

Hence, the addition of Rs.4,05,248/- is confirmed.

xi) Supreme Bottles: In the case of Supreme Bottles, the

addition made was Rs.97,520/-. The appellant filed reconciliation

statement along with account copies.

xii) Varsha Bottle Suppliers: The AR submitted that the appellant

is buying one type of bottle from Varsha Bottle Suppliers and

selling them another type of bottles. These transactions were

mutually netted off in the subsequent year. Copies of purchase

and sales invoices were produced for verification. The addition of

Rs.6,09,856/- is to be deleted."

4. After considering the details of the trade creditors, the Tribunal

confirmed the order of the Commissioner of Income Tax (Appeals).

Aggrieved by the said order, the Revenue is before this Court raising the

above-mentioned substantial questions of law.

5. Heard Mr.T.R.Senthil Kumar, learned Standing Counsel appearing

for the Revenue and perused the materials placed before this Court.

6. A faint plea was made that the Commissioner of Income Tax

(Appeals) has failed to follow the procedure under Rule 46A (of Income Tax Rules, 1962). We find that the Department has raised six grounds in the appeal

before the Tribunal, but this issue does not appear to figure therein. They

were primarily on merits of the claim of the assessee on unexplained credit

balance.

7. We find that the Commissioner of Income Tax (Appeals) has gone

into the individual transaction on merits holding that payments were made

through banking transactions and deleted the addition. The Tribunal has also

once again verified the same and held in favour of the assessee.

8. Being pure question of fact, which was verified by the

Commissioner of Income Tax (Appeals) and again verified by the Tribunal

and confirmed the same, we find no question of law much less any

substantial question of law arises for consideration in this appeal.

9. In the result, this Tax Case (Appeal) stands dismissed. No costs.

R.SUDHAKAR,J.

and

R.KARUPPIAH,J.