Court Finds No Substantial Question of Law in Revenue's Appeal Against ITAT's Order Deleting Unexplained Cash Loan Additions Under Section 69A of Income Tax Act
In a significant ruling dated October 5, 2026, the Calcutta High Court dismissed the appeal filed by the Principal Commissioner of Income Tax (Central)-2, Kolkata, against the order of the Income Tax Appellate Tribunal (ITAT) that deleted the addition of Rs.11.35 crore made on account of alleged unexplained cash loans and interest under Section 69A of the Income Tax Act, 1961. The case pertains to the assessment year 2020-2021 involving the respondent, Suresh Kumar Banthia, a key individual linked to the Citizen Group.
The revenue had challenged the ITAT's decision, contending that the Tribunal erred in deleting the addition made by the Assessing Officer and the Commissioner of Income Tax (Appeal), which was based on documents seized during earlier searches and surveys. The revenue raised four substantial questions of law, including whether the ITAT was justified in deleting the addition without considering the merits and whether the Tribunal made a perverse finding by accepting the assessee's retraction of his survey statement on grounds of coercion.
The High Court thoroughly examined the factual matrix and legal principles. It noted that the key documents seized from third-party brokers were related to a search operation conducted on November 30, 2018-prior to the start of the financial year relevant to the assessment year in question. The ITAT found that these materials had no nexus with the income assessment for 2020-2021. Moreover, the assessee had promptly retracted his survey statement within five days by filing an affidavit claiming coercion and denying the relevance of the impounded entries.
The Court observed that the ITAT, being the last fact-finding authority, had carefully considered the entire evidence and found no corroborative material supporting the addition. The Tribunal also highlighted the absence of statements from named financial brokers and lack of any independent evidence linking the assessee to the alleged cash loans. The High Court reiterated the settled legal position that while strict provisions of the Indian Evidence Act (now Bharatiya Sakshya Adhiniyam, 2023) do not apply to income tax proceedings, the tax authorities must be guided by the general principles of evidence and natural justice. Assessments cannot be based on suspicion, conjecture, or surmise without supporting material.
The Court also referred to Supreme Court precedents such as Dhakeswari Cotton Mills Ltd v. Commissioner of Income Tax and Omar Salay Mohamed Sait v. Commissioner of Income-tax, which emphasize that the Income Tax Appellate Tribunal's factual findings are binding unless shown to be perverse or made without proper consideration of evidence.
Finding no substantial question of law involved, the Calcutta High Court dismissed the department's appeal and upheld the ITAT's order directing the deletion of the addition under Section 69A. The Court also dismissed the department's application for stay and allowed the condonation of delay application filed by the revenue earlier.
This judgment underscores the necessity for tax authorities to substantiate additions with credible and relevant evidence and confirms the ITAT's role as the final fact-finder in income tax disputes.
Bottom Line:
Income Tax - Section 69A - Addition on account of alleged unexplained cash loans and interest - ITAT deleted addition holding there was no corroborative material and seized material related to period prior to relevant assessment year - High Court held ITAT, being last fact finding authority, rightly deleted addition - No substantial question of law arose.
Statutory provision(s):
Income Tax Act, 1961 Section 69A, Section 133A, Section 132, Section 143(2), Section 142(1), Section 271AAC, Section 260A; Bharatiya Sakshya Adhiniyam, 2023
