No deduction/allowance is allowable against unexplained cash credit u/s 68

No deduction/allowance is allowable against unexplained cash credit u/s 68 which is considered as income of the assessee

ABCAUS Case Law Citation
ABCAUS 3599 (2022) (05) ITAT

Important case law relied referred:
Fakir Mohmed Haji Hasan v. CIT [2001] 247 ITR 290

In a recent judgment, the ITAT has held that no deduction/allowance is allowable against unexplained cash credit u/s 68 which is considered as income of the assessee.

In the instant case, the return of income was filed by the assessee for the relevant assessment year was finalised by the Assessing Officer (AO) making an addition on account of unexplained cash credit of unsecured loan u/s 68 of the Income Tax Act, 1961 (the Act).

However, the AO did not disallowed the interest paid on the said   unsecured loan while finalising the scrutiny assessment.

The Principal CIT observed that as per section 37 of the Act, “any expenditure not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended   wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head “profits and gains of business or profession”.

Accordingly, the Principal CIT(Appeals) held that the assessment order is not only erroneous but also prejudicial to the interests of the Revenue in terms of section 263 of the Income Tax Act, 1961.

The Principal CIT held that the impugned assessment order had been passed by the AO without making proper verification of the interest claimed on unsecured loan treated as unexplained cash credit u/s 68 of the Act.

The assessment order was accordingly cancelled and the AO was directed to examine the matter and make fresh assessment in accordance with law after giving proper opportunity to the assessee.

The CIT(A) has held that the Principal CIT has not erred in fact and law in holding that the assessment order is erroneous and prejudicial to the interests of the Revenue.

No deduction/allowance allowable against unexplained cash credit u/s 68

The Tribunal noted that Hon’ble High Court has held that when unexplained income cannot be classified under any one of the heads of income under Section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise.

The Hon’ble High Court had held that deductions, which are applicable to the incomes under any of these various heads, will not be attracted in case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B & 69C in view of the scheme of those provisions.

In view of the above, the Tribunal opined that it is a settled proposition of law that no deduction/allowance is allowable against unexplained cash credit which is considered as income of the assessee. 

The Tribunal held that the Principal CIT had not erred in facts and in law in setting aside the assessment order u/s 263 of the Act by holding that the order is erroneous and prejudicial to the interests of the Revenue.

Therefore, the Tribunal allowed the appeal in favour of the Revenue and against the assessee.

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