Finding recorded by lower authorities on the basis of evidence can not be interfered with by the third Appellate Court – High Court
In a recent judgment, Hon’ble Guwahati High Court has held that finding once recorded by both the lower authorities on the basis of evidence with regard to genuineness of the transaction in question and the creditworthiness of the shareholders concerned is not liable to be interfered with by the third Appellate Court, unless an error of law as contemplated under Section 260A of the Income Tax Act is made out.
ABCAUS Case Law Citation:
4358 (2024) (12) abcaus.in HC
In the instant case, the Income Tax Department (ITD/the appellant) had challenged the order passed by the ITAT confirming the action of the CIT(A) in deleting the addition made u/s 68 of the Income Tax Act, 1961 (the Act).
A search and seizure operation as per Section 132 of the Act was conducted in the office premises of the respondent company as well as in the residence of family members and other business concerns etc..
The Assessing Authority, doubted the genuineness of the transaction in respect of share capital received from two private limited company and accordingly added it to the income of the respondent company under Section 68 of the Act.
Aggrieved by the aforesaid order of the Assessing Officer, the respondent preferred an appeal before the Commissioner of Income Tax (Appeals) which deleted the aforesaid addition. Aggrieved by the aforesaid order of the CIT(A), the appellants filed an appeal before the Income Tax Appellate Tribunal (Second Appellate Tribunal) which dismissed the appeal of the Income Tax Department.
It was the contention of the Revenue that the impugned order of the Second Appellate Tribunal was totally erroneous. That the respondent assessee had not been able to establish the source of source as regards the transaction in question and as such, the order of the Assessing Authority under Section 68 of the Act was valid and ought not to have been interfered with by both the Appellate Authorities. It was further submitted that under Section 68 of the Act, the obligation stands with the assessee to explain the source of source and hence, in the present case, since the assessee had not been able to explain the source of source as regards the transaction in question, the Assessing Officer had rightly added the sum to be charged to income tax as the income of the respondent/assessee for the assessing year in question. The Revenue relied upon the decisions of the Apex Court to buttress its contentions.
The Hon’ble High Court observed that it is apparent that the appeal under Section 260A of the Act shall be maintainable only if it involves substantial question of law. Further, the provisions of second appeal as contained under Section 100 of Code of Civil Procedure, 1908 (hereinafter referred to as ‘CPC’), is made applicable in respect of appeal filed under Section 260A of the Act.
The Hon’ble High Court noted that in the present case, upon reading the first substantial question of law formulated by it, i.e., whether the Tribunal erred in law in holding that assessee had discharged its burden of substantiation of the identity, creditworthiness and genuineness of the transactions involving receipt of share application money, appeared as essentially a question of fact.
It was observed that the first appellate authority had held that both the share holders were genuine and that the identity, creditworthiness and genuineness of the two share holders were established and therefore deleted the impugned addition made in the assessment year in question. Further, Second Appellate Tribunal had also examined the explanation and materials produced by the respondent assessee and had held that no fresh credit has been received by the respondent/assessee in the financial year in question and that unsecured loan had been converted into equity capital by way of journal entry. Accordingly, the Second Appellate Tribunal had held that the Appellate Authority rightly held that no addition was warranted under Section 68 of the Act in relation to the conversion of loan into equity. The Second Appellate Tribunal had also accepted the explanation for source of source provided by the respondent/assessee.
The Hon’ble High Court observed that the Hon’ble Supreme Court had held that the High Court while exercising power under Section 100 CPC shall not re-appreciate the evidence and scrutinize the findings recorded by the First Appellate Tribunal. In the above case, the Apex Court has also held that the High Court shall not weigh the evidence led by the plaintiff to establish his bonafide requirement. Also, the Division Bench of the Madhya Pradesh High Court in the context of an appeal filed under 260A of the Act, had clearly held that the High Court shall not examine the factual background of the issue as regards the reliability, adequacy, credibility and genuineness of the explanation provided by the assessee. The Rajasthan and Delhi High Courts also took a similar view.
In view of the above, the Hon’ble High Court opined that the Third Appellate Court under Section 260A of the Act cannot decide an appeal which does not involve any substantial question of law and shall also not go into factual finding of facts recorded by the Second Appellate Tribunal unless and until the same is based on no evidence. However, if the decision of the Second Appellate Tribunal is based on evidence, High Court while exercising the jurisdiction of the Third Appellate Court shall not weigh the sufficiency and adequacy of such evidence.
The Hon’ble High Court observed that in the present case, the decision of the Second Appellate Tribunal being based on evidence, the same cannot be therefore said to be perverse. It was evident that the Second Appellate Tribunal had specifically held that the genuineness and creditworthiness of the transaction in question has been fully established by the assessee respondent. Therefore, the aforesaid finding being a finding of fact High Court cannot upset such finding of fact in this appeal filed under Section 260A of the Act. In fact, the first substantial question of law whether the Tribunal erred in law in holding that the assessee had discharged its burden of substantiation of the identity, creditworthiness and genuineness of the transaction involving receipt of share application money being essentially a question of fact is not a substantial question of law. Similarly, the second substantial question of law that whether the Tribunal was justified in deleting the addition under Section 68 of IT Act of share application money received was also essentially a question of fact and not a substantial question of law.
The Hon’ble High Court held that neither the two questions framed involved any substantial question of law within the meaning of Section 260A of the Act, nor any perversity and hence, High Court cannot interfere in the impugned finding of fact recorded by the Second Appellate Tribunal.
Accordingly, the appeal was dismissed.
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