BY TIOL News Service

CHENNAI, APR 26, 2018: THE issue before the bench was whether the dismissal of assessee's appeal due to his inability to explain the source of cash deposits or provide cogent evidence in support, would constitute a substantial question of law. NO is the answer. The Bench also took the opportunity to clarify that in order to be considered as 'substantial', a question of law must be debatable in nature and must not have been settled by a binding precedent or by the law of the land. The bench further held that it would depend on the facts and circumstance of each case whether a question of law was substantial, the paramount overall consideration being the need to strike a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation of litigation.

Facts of the case

The assessee was the Managing Director in a company during the relevant AY. In his returns, the assessee declared his income at about Rs 4 lakhs. On assessment, the AO noted the assessee had deposited cash into his account and transferred the same to the company's account to avoid taxation. Since the source of such cash deposits was not proven, the AO treated the same as unexplained cash deposits. Hence the AO determined the assessee's income at around Rs 37 lakhs. On appeal, the CIT(A) confirmed such findings. Although the assessee claimed to have received such amount from his sister-in-law, the CIT(A) held there to be no congent evidence to substantiate such claim.

On hearing the matter the High Court held that,

++ the CIT(A) found that the cash deposits were not explained and substantiated by cogent evidence. The entire loan amount had been advanced by cash and there were cash deposits even before the date of the alleged sale agreement executed by the assessee's sister-in-law. Needless to mention that receipt of money from customers for travellers cheques also could not remain unaccounted for. Moreover cogent evidence was necessary to prove the receipt of cash from customers. That seems to be lacking. An appeal lies u/s 260-A of the Income Tax Act, only when there is a substantial question of law. There is no question of law involved in this appeal, much less any substantial question of law;

++ to be "substantial" a question of law must be debatable, not previously settled by law of the land or a binding precedent, and must have a material bearing on the decision of the case, if answered either way, insofar as the rights of the parties before it are concerned. To be a question of law "involving in the case" there must be first a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law is a substantial one and involved in the case or not, the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis. Reference may be made to Santosh Hazari v. Purushottam Tiwari.

(See 2018-TIOL-789-HC-MAD-IT)