Pavankumarm Sanghvi Vs ITO (Gujarat High Court)
The assessee filed a tax appeal before the Gujarat High Court challenging the order of the Income Tax Appellate Tribunal dated 17.05.2017. The appeal raised two questions: whether the Tribunal was justified in confirming the addition of ₹20 lakh as unexplained cash credit under Section 68 of the Income Tax Act despite confirmations from the lenders, and whether the Tribunal was justified in confirming the disallowance of ₹3,66,041 towards interest paid on the unsecured loans treated as unexplained cash credits. The additions had been made by the Assessing Officer and were subsequently confirmed by the Commissioner (Appeals) and the Tribunal.
The High Court referred to the Tribunal’s findings, which had undertaken a detailed examination of the financial records and bank statements of the two lenders, Natasha Enterprises and Mohit International.
With respect to Natasha Enterprises, the Tribunal observed that immediately before issuing the cheque of ₹10 lakh to the assessee, an equivalent credit had been received in the lender’s bank account. The account reflected repeated high-value debit and credit transactions while maintaining negligible closing balances. The Tribunal also examined the lender’s financial statements and found that although it 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 expenses, rent and stationery despite dealing in diverse businesses such as diamonds, plywood, aluminium, software and other items. The Tribunal concluded that these financial characteristics were not representative of a genuine business concern.
