Harsha Associates Private Limited Vs DCIT (Supreme Court of India)
The Supreme Court of India, after condoning delay and allowing an exemption application, dismissed the Special Leave Petition filed against the Delhi High Court’s decision in the case concerning Assessment Year 2007-08. The Supreme Court found no grounds to interfere with the High Court’s judgment, thereby affirming the findings of the lower authorities.
Read HC Judgment: Delhi HC upholds addition for unpresented cheques as bogus credits
The High Court appeal arose from the Income Tax Appellate Tribunal’s (ITAT) order dated 21.06.2022 concerning cross-appeals filed by both the assessee and the Revenue. The assessee had declared income of ₹28,71,047, and its accounts showed liabilities owed to three banks aggregating ₹4,45,99,625. On issuing notices under Section 133(6), none of the banks confirmed the liabilities as reflected in the assessee’s books, except Indian Overseas Bank, which confirmed only ₹1,86,636. The Assessing Officer (AO) therefore treated the remaining sum of ₹4,44,12,989 as bogus credits. Several additional additions were made on account of unsecured loans, cessation of liability, unexplained deposits, disallowance of interest, unexplained advances, and a disallowance under Section 40A(3).
Before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee furnished additional evidence, which was admitted. The CIT(A) deleted multiple additions, including the major addition relating to liabilities shown as payable to banks, as well as additions relating to cessation of liabilities, differences in unsecured loans, disallowance of notional interest, and most unexplained advances. Additions relating to an unexplained deposit of ₹1.40 crore and ₹4,89,744 of unexplained advances were sustained.
In the Revenue’s appeal before the ITAT, three issues were raised: deletion of the addition relating to the bank liabilities, deletion of the cessation-of-liability addition, and deletion of additions relating to advances received from two individuals. The ITAT upheld the deletions relating to cessation of liability and advances, but partly allowed the appeal regarding the bank-liability addition. It sustained the AO’s addition to the extent of ₹4,39,22,918, finding that the assessee had failed to establish liabilities of ₹67,43,549 to Bank of Baroda and ₹3,71,79,369 to Punjab National Bank.
Before the High Court, the assessee raised several questions, including whether the ITAT’s findings were perverse, whether the CIT(A) had properly examined the evidence, whether natural justice was violated, and whether the ITAT’s decision conflicted with earlier judicial precedents. The core dispute concerned whether the sums shown as payable to Bank of Baroda and Punjab National Bank represented genuine liabilities. It was undisputed that the bank statements did not show such liabilities and that the accounts were never overdrawn to the extent claimed.
The assessee argued that these were “book overdrafts” arising from cheques issued to suppliers that were not presented by 31.03.2007. It contended that liabilities could continue to appear in the books even if cheques remained unpresented. However, the High Court noted that the cheques were not presented even in FY 2007-08, suggesting that these cheques were never acted upon. The Punjab National Bank account, being an escrow account usable for specified purposes only, could not reflect a negative balance at all. Therefore, the alleged liability could not exist in that account.
The assessee claimed that the cheques were issued for procurement of materials that were later returned due to a real-estate market downturn. It further claimed that the cheques were recovered and not presented. The ITAT found that the assessee had not produced sufficient evidence to demonstrate that materials were purchased or returned. The High Court observed that the ITAT had found no documentary evidence on record to substantiate the assessee’s narrative.
The High Court held that the question of genuineness of the liabilities was purely factual. Since the assessee conceded that its books reflected inflated outstanding balances, and since no corroborative documentation was produced, the ITAT’s decision could not be considered perverse or illegal. The Court also noted that no substantial question of law arose, as the dispute centered on whether the entries represented genuine liabilities or fictitious claims.
Accordingly, the High Court dismissed the appeal. The Supreme Court, in turn, declined to interfere, thereby upholding the findings that the liabilities shown as payable to the banks were not genuine and that the addition of ₹4,39,22,918 sustained by the ITAT was justified.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
