PCIT Vs Merrygold Gems Pvt. Ltd. (Gujarat High Court)
The Gujarat High Court has dismissed a tax appeal filed by the Principal Commissioner of Income Tax (PCIT) against Merrygold Gems Pvt. Ltd., affirming the decisions of the Income Tax Appellate Tribunal (ITAT) and the Commissioner of Income Tax (Appeals) [CIT(A)]. The case revolved around the deletion of an addition of ₹11.57 crore made under Section 68 of the Income Tax Act, which the Assessing Officer (AO) had classified as unexplained cash credits. The Revenue’s appeal sought to challenge whether the Tribunal was justified in de-leting this addition, especially considering the Revenue’s claim of the creditor’s non-existence. The High Court, however, found no legal merit in the Revenue’s appeal, primarily due to the undisputed facts of the loan repayments.
Unexplained Cash Credits and Repayment as Evidence
The core of the dispute was the addition made by the AO on account of unsecured loans received by Merrygold Gems Pvt. Ltd. The assessee, a company engaged in trading dia-monds, had shown these loans in its books, but the AO treated them as unexplained cash credits under Section 68, leading to an addition of ₹11.57 crore to the assessee’s income. The CIT(A) and subsequently the ITAT deleted this addition, relying heavily on the fact that the assessee had repaid the entire loan amount within the same financial year, mostly within 30 days.
