SHANTILAL S. JAIN PROP. QUALITY SUPPLIERS vs. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-22

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ITXA/687/2004HC Bombay31 July 2007Bench: HON'BLE SHRI JUSTICE F.I. REBELLO, HON'BLE SHRI JUSTICE J.P. DEVADHAR4 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the fact that the two cash creditors were not assessed to tax could not be the sole ground for sustaining the additions, especially when a confirmation letter from one creditor was filed and its veracity was not doubted. The Court noted that receipts and repayments were made by account payee crossed cheques, and the loans were raised through a broker whose details were provided by the assessee. Therefore, the Tribunal was not justified in sustaining the additions of Rs. 25,000/- each, aggregating to Rs. 50,000/-, solely on the ground that the cash creditors were not assessed to tax. Both questions of law were answered in favour of the assessee and against the revenue. The additions of Rs. 50,000/- were deleted.

What were the facts?

The assessee, Shantilal S. Jain, appealed to the High Court against an order of the Income Tax Appellate Tribunal (ITAT) dated November 10, 2003. The assessment year in question is 1989-90. The Assessing Officer had made an addition of Rs. 4,43,000/- on account of unproved loans and disallowed other expenses. The CIT(A) partly allowed the assessee's appeal. The ITAT further partly allowed the appeal, confirming additions of Rs. 25,000/- each from Shri D.K. Sanghvi and M/s. Aqua Trade, primarily because these creditors were not assessed to income tax. The High Court admitted the appeal on specific questions of law.

What were the issues?

1. Whether, in law and the facts and circumstances, the Tribunal erred in treating a loan of Rs. 25,000/- received from Shri D.K. Sanghvi as undisclosed income of the Appellant? (Question of law and fact, relating to Section 68 of the Income Tax Act, 1961). 2. Whether, in law and the facts and circumstances, the Tribunal erred in treating a loan of Rs. 25,000/- received from M/s. Aqua Trade as undisclosed income of the Appellant? (Question of law and fact, relating to Section 68 of the Income Tax Act, 1961). Assessee's Contention: The assessee argued that the Tribunal erred in confirming the additions. The assessee highlighted that a confirmation letter from Shri D.K. Sanghvi was provided, its veracity was not doubted, and both receipts and repayments were through account payee crossed cheques. Furthermore, the loans were raised through a broker, whose details (name and income tax number) were volunteered by the assessee. Revenue's Contention: The revenue's primary contention, as accepted by the Tribunal, was that the two creditors were not assessed to income tax, which was deemed sufficient ground for treating the loans as undisclosed income.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 143(3),Section 68

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICITON INCOME TAX APPEAL NO.687 OF 2004 Shantilal S. Jain Prop : M/s.Quality Suppliers, Shanti Villa, B-2, Model Town, Gulmohar Cross Road No.7, Juhu Scheme, Mumbai - 400 049. .. Appellant. Versus The Asstt. Commissioner of Income tax, Circle 22(2), Aayakar Bhavan, M.K. Road, Mumbai - 400 020. .. Respondent. Mr.S.G. Dalal for the appellant. Mr.A.S. Rao for the respondent. CORAM : F.I. REBELLO & J.P. DEVADHAR, JJ. DATED : 31ST JULY, 2007. ORAL JUDGMENT (Per J.P. Devadhar, J.) 1. Heard. 2. In this Appeal filed under Section 260-A of the Income Tax Act, 1961, the appellant-assessee has formulated the following questions of law from the order of the Tribunal dated 10th November, 2003 passed in I.T.A. No.6488/Mum/97. 1. Whether in the facts and in the circumstances of the case, and in law, the Tribunal erred in treating the loan of Rs.25,000/- received from Shri D.K. Sanghvi as undisclosed income of the Appellant ? CNR No : HCBM020070522004 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:15:41

2 2. Whether, in the facts and in the circumstances of the case, and in law, the Tribunal erred in treating the loan of Rs.25,000/- received from M/s.Aqua Trade as undisclosed income of the Appellant ? 3. The Appeal is admitted on the aforesaid questions and by consent of the parties, the appeal is taken up for final hearing. 4. The assessment year involved herein is A.Y. 1989-90. 5. In the assessment year in question, the Assessing Officer passed an assessment order under Section 143(3) of the Income Tax Act, 1961 making an addition of Rs.4,43,000/- on account of loans which were not proved and also by disallowing other expenses. On appeal filed by the assessee, the CIT (A) partly allowed the assessee’s appeal on the basis of the remand report of the Assessing Officer. On further appeal filed by the assessee, the Tribunal partly allowed the appeal and confirmed the additions of Rs.25,000/- each received by the assessee from two cash creditors namely Shri D.K. Sanghvi and M/s.Aqua Trade mainly on the ground that the said two creditors were not assessed to income tax. 6. In our opinion, the fact that the two cash Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:15:41

3 creditors were not assessed to tax could not be the sole ground for sustaining the additions, especially when confirmation letter of D.K. Sanghvi was filed in the course of assessment proceedings. Veracity of the said confirmation letter has not been doubted. Moreover, in the present case, receipts as well as repayments have been made by account payee crossed cheques. It is not in dispute that the loans were raised through a broker and the assessee had volunteered to produce the broker and had given the name and income tax number of the broker. 7. In these circumstances, we are of the opinion that the Tribunal was not justified in sustaining the addition of Rs.25,000/- each aggregating to Rs.50,000/- on the ground that the cash creditors were not assessed to tax. 8. Accordingly, we hold that the additions of Rs.50,000/- in the hands of the assessee cannot be sustained. Both the questions are answered in favour of the assessee and against the revenue. 9. The Appeal is allowed in the aforesaid terms with no order as to costs. (F.I. REBELLO, J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:15:41

4 (J.P. DEVADHAR, J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:15:41 Powered by TCPDF (www.tcpdf.org)

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