SC Dismisses SLP as Section 68 Addition Was Based on Tribunal’s Factual Findings

Pavankumar M. Sanghvi Vs ITO (Supreme Court of India)

The matter reached the Supreme Court by way of a Special Leave Petition filed by the assessee challenging the Gujarat High Court’s judgment, which had upheld the Income Tax Appellate Tribunal’s order confirming additions under Section 68 of the Income Tax Act, 1961. After hearing the parties, the Supreme Court dismissed the Special Leave Petition.

Before the High Court, the assessee had challenged the Tribunal’s order dated 17.05.2017, raising two principal questions. The first questioned whether the Tribunal was justified in confirming the addition of ₹20 lakh as unexplained cash credit under Section 68 despite confirmations from the lenders. The second questioned the confirmation of the disallowance of ₹3,66,041 towards interest paid on the unsecured loans, which had been treated as unexplained cash credits.

The additions had originally been made by the Assessing Officer under Section 68. The Commissioner (Appeals) upheld the additions, following which the Tribunal dismissed the assessee’s appeal.

The Tribunal examined the financial records and bank statements of the two lenders, Natasha Enterprises and Mohit International. It observed that, in the case of Natasha Enterprises, a credit of ₹10 lakh appeared in the lender’s bank account immediately before the cheque of the same amount was issued to the assessee. The account reflected repeated high-value debit and credit transactions while maintaining negligible closing balances. The Tribunal also noted that although the lender reported a turnover of ₹122.92 crore, it had no closing stock, earned a profit of only about 0.09% of turnover, and incurred minimal expenditure on salaries, office rent, office expenses and stationery despite dealing in multiple lines of business.

A similar pattern was found in the bank account and financial statements of Mohit International. Its bank account reflected substantial debit and credit transactions with consistently low closing balances. Despite reporting a turnover of ₹127.87 crore, it disclosed a profit of less than 0.09%, incurred no expenditure on travelling or telephone, and reported very low business expenses apart from brokerage and assortment of diamonds. The Tribunal found that the level of turnover and the expenditure incurred were inconsistent with the functioning of a genuine business.

The Tribunal further observed that the assessee failed to produce the lenders for verification or provide their current whereabouts. It also noted that unsecured loans carrying interest at 12% per annum without any security would ordinarily require a close relationship or trust, whereas the assessee could not reasonably explain the circumstances in which such loans had been advanced. The Tribunal also took into account the assessee’s silence when informed that the lenders were alleged shell entities and concluded that the loan transactions were not genuine.

The Gujarat High Court examined the Tribunal’s findings and held that the dispute was entirely based on appreciation of evidence and was factual in nature. It observed that the Tribunal had given elaborate reasons for concluding that the transactions were not genuine and found no perversity in those findings warranting interference.

Before the High Court, the assessee argued that the loans had been received through cheques, the lenders had confirmed the transactions, and their audited accounts had been produced before the tax authorities. According to the assessee, these factors established the genuineness of the transactions, the lenders’ capacity, and the fact of lending, making the addition under Section 68 unsustainable.

The High Court rejected these submissions, observing that the Tribunal had closely examined the financial position of the lenders and the surrounding circumstances before concluding that the transactions lacked genuineness. It therefore dismissed the tax appeal.

The Supreme Court heard the Special Leave Petition and dismissed it. Consequently, the findings of the Tribunal, as affirmed by the Gujarat High Court, remained undisturbed.

Also Read: 

ITAT Ahmedabad Judgment in this case: Section 68 Addition Upheld as Assessee Failed to Prove Genuineness of Loan Transactions

High Court Judgment in ths case: Cheque Payments & Confirmations Not Enough; Gujarat HC Confirms Section 68 Addition

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

Heard.

The special leave petition is dismissed.