In a situation in which assessee and it’s proprietorship concern are maintaining separate books of accounts – as in the present case, an assessee may have his own capital of ‘x’ amount, and yet his capital contribution in capital account of a proprietorship concern can be more than ‘x’ amount because such funding of capital can be not only out of own capital but out of other available funds as well. Therefore, the addition made on account of unexplained credit under Section 68 due to difference in capital account of assessee and his proprietorship concern was liable to be deleted.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. This Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Appellate Tribunal, Ahmedabad “B” Bench dated 28.09.2018 in ITA No.1329/Ahd/2014 for the Assessment Year 2009-10, whereby the Tribunal allowed the appeal filed by the assessee.
2. The Revenue has proposed the following questions as the substantial questions of law arising in this tax appeal :
“[A] Whether the Appellate Tribunal has erred in law and on facts in deleting the addition made under section 68 of the Act on account of unexplained cash credits?
[B] Whether the evidence furnished by the assessee in support of (i) identify (ii) genuineness of transaction and (iii) creditworthiness of each of the creditors on facts of the case as per records is sufficient evidence to uphold the cash credits in all cases to be genuine u/s. 68 of the Act?
[C] Whether the Appellate Tribunal is right in law and on facts in deleting the addition by holding the introduction of capital in the books of M/s Jay Jewellers as explained source despite the fact that the unsecured loans taken by the assessee in his personal capacity, from which the capital was stated to be introduced, remains unexplained in the books of the assessee?”
3. The Tribunal while allowing the appeal filed by the assessee questioning the correctness of the order dated 28.02.2014 passed by the CIT(A) in the matter of assessment under Section 143(3) of the Act, 1961 for the Assessment Year 2009-10 held as under :
“Let us first understand the case of the Assessing Officer. His short point was that since capital shown to have been introduced in the capital account of Jay Jewellers does not find corresponding entries in the capital account of the assessee and are in fact much more than capital account credit in the hands of the assessee, and, therefore, the introduction of capital in the accounts of Jay Jewellers stands unexplained. This point, as noted in the remand report, is fallacious. The assessee has one set of accounts for himself, as an individual, and the other set of accounts for his sole proprietorship concern, Jay Jewellers. It is indeed true that the assessee and his sole proprietorship concern are one unit so far as taxability under the Income Tax Act, 1961 is concerned, but, viewed from the accounting perspective, the maintenance of such separate books of accounts are perfectly in order. In such a situation, the capital account of the assessee in his accounts, and capital account of Jay Jewellers, in the name of assessee, cannot be mirror image of each other – as the Assessing Officer erroneously expected these accounts to be. This comparison was incorrect. In a situation in which assessee and it’s proprietorship concern are maintaining separate books of accounts – as in the present case, an assessee may have his own capital of ‘x’ amount, and yet his capital contribution in capital account of a proprietorship concern can be more than ‘x’ amount because such funding of capital can be not only out of own capital but out of other available funds as well. The Assessing Officer should have compared the capital account of the Jay Jewellers, with the account of Jay Jewellers in the hands of the assessee, it’s proprietor. We have compared these two accounts, which are placed before us at page 5 and 6 of the paper book, and these two accounts which are actually mirror images of each other. In these circumstances, as rightly accepted by the Assessing Officer in the remand proceedings, the capital introduction of Rs.1,85,65,955/- stands explained in the books of Jay Jewellers.
Learned CIT(A) has, however, given it a different twist. He has noted that the assessee has, in his personal books of accounts, accepted unsecured loans of Rs.8,52,58,022/-, including an amount of Rs.7,91,19,400/- from Harshad Jewellers, and “the assessee was required to have established their identity, creditworthiness and genuineness of transactions in respect of loans taken in the personal account.” That, however, was not the case of the Assessing Officer nor any requisition in respect of the same was made at the assessment or appellate stage. The addition under section 68, in such a case, should have been made for Rs.8,52,58,022/-, and not Rs.1,85,65,955/- – as is the situation in the present case. What is before us is the addition of Rs.1,85,65,955/- and that credit is reasonably explained and even admitted to be so by the Assessing Officer. Learned CIT(A) has mentioned about the need of verification about the creditors of Rs.8,52,58,022/-but made no addition in respect of the same. It cannot be open to us to enlarge the scope of proceedings at this stage, or deal with an aspect in respect of which no additions are made. So far as the addition impugned in this appeal is concerned, and that is what we are concerned with, it is explained and we delete the related additions of Rs.1,85,65,955/-.
In view of the above discussion, and bearing in mind entirety of the case, we delete the impugned addition of Rs.1,85,65,955/-. As we do so, we may also add that learned taxguru.in counsel has filed copies of confirmations in respect of Rs.8,52,58,022/- and pointed out how all this material was duly submitted at the assessment stage, but then we are not inclined to deal with the same on merits at this stage. We leave it at that.”
4. Having heard Ms. Bhatt, the learned senior standing counsel appearing for the Revenue and having gone through the materials on record, we are of the view that no error not to speak of any error of law could be said to have been committed by the Tribunal in passing the impugned order. We are of the view that there is no substantial question of law involved in the present tax appeal. The Tribunal having gone through the materials on record and after due comparison of the two accounts ultimately, held in favour of the assessee. The appeal is more on factual aspects rather than on any substantial question of law. We would not like to disturb the findings recorded by the Tribunal. In the result, this appeal fails and is hereby dismissed.