SLP dismissed against bogus liability named “book overdraft” for cheques not presented

SLP dismissed against bogus liability styled as “book overdraft” reflected as payable to banks for cheques issued not presented to the banks

In a recent judgment, Hon’ble Supreme Court dismissed the SLP against the decision of the Delhi High Court upholding the addition towards bogus liability styled as “book overdraft” reflected as payable to banks in respect of alleged cheques issued to suppliers that were not presented to the banks

ABCAUS Case Law Citation:
4841 (2025) (11) abcaus.in SC

The return of income of the appellant assessee was picked up for scrutiny. On examination of the accounts, the AO inter alia found that the assessee had reflected large amounts of the liabilities owed to various Bank.

However, the said liabilities were only reflected in the books and were not supported by any statement furnished by the concerned banks. Accordingly, the AO issued a notice under Section 133(6) to the said banks seeking confirmation of the liabilities as reflected by the Assessee in its accounts.

None of the banks confirmed the amount of liabilities as reflected by the assessee in its books of accounts. In the aforesaid circumstances, the AO concluded that the assessee had reflected bogus credits in its accounts and accordingly, made an addition.

On first appeal, the CIT(A) confirmed the addition. The ITAT also dismissed the appeal observing that the assessee had failed to establish the said liability reflected as payable to Banks. Aggrieved, the assessee took the issue further to Hon’ble High Court.

The Hon’ble High Court noted that the assessee had reflected those amounts as payable to the banks. However, bank accounts did not reflect the said outstanding. However, the said accounts were not overdrawn to the aforesaid extent. Admittedly, the amounts reflected as payable to the said banks were not payable to the said banks.

Interestingly, the assessee contended that the liabilities were reflected in its books of account as “book overdraft” and not “bank overdraft”. He submitted that the debts reflected were book debts and not overdrafts from banks. The Assessee explained the outstanding liability in its books of accounts had arisen on account of cheques issued to various suppliers that were not presented to the concerned banks as on year closing. Thus, whilst the books reflected debt owed to the banks, the bank statement did not reflect an overdraft to the said extent.

The Hon’ble High Court noted that the cheques claimed to have been issued by the assessee, on account of which the books reflected a higher outstanding, were not presented in relevant FY as well. Thus, in fact, these cheques were never presented to the concerned banks.

Further, the Hon’ble High Court observed that one of the bank account was an escrow account (and not an overdraft account) and could be utilised only for specified purposes. Therefore, the balance in the said account could not be in negative and the liability reflected in the books simply did not exist.

The Hon’ble High Court observed that the assessee had claimed that the cheques were issued for the purchase of materials from various vendors. However, due to the downturn in the real estate market, its customers failed to make payments, and the assessee could not deposit the required funds into Bank’s escrow account. Consequently, the Assessee returned the materials purchased and recovered cheques issued to various suppliers. Thus, in any event, the banks could not be reflected as creditors, as they had not extended the advance as reflected by the assessee in its books.

The Hon’ble High Court noted that if the Assessee’s claim is accepted, the unpaid vendors had to be reflected as sundry creditors. However, the ITAT did not accept the assessee’s contention, primarily due to a lack of sufficient evidence, and there was no material on record to show that the assessee had, in fact, received the goods, which were subsequently returned. Also, the order of the ITAT did not reflect that any documentary evidence was produced by the assessee to establish the said transactions as claimed.  

The Hon’ble High Court opined that the question whether the transactions, as claimed by the assessee, existed and were genuine are questions of fact and the decision of the ITAT did not suffer from any perversity or patent illegality.

Accordingly, the Hon’ble High Court dismissed the appeal of the assessee.

Not satisfied with the judgment of the High Court, the Department challenged it before the Hon’ble Supreme Court by way of filing a Special Leave Petition. However, the Apex Court dismissed the SLP with the following observations,

“Having heard the learned counsel appearing for the petitioner and having gone through the materials on record, we find no good ground to interfere with the impugned order passed by the High Court. The Special Leave Petition is, accordingly, dismissed.”

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