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.
