No deduction allowed against unexplained cash credit which is considered as income of the assessee

The brief facts of the case are that the return of income was filed by the assessee for the captioned assessment year declaring a total income of 2,35,60,943/-. The scrutiny assessment was finalised by the AO on 31.03.2016 determining total income at 10,45,01,940/-. The Principal CIT on verification of records found, that while finalising the assessment order, the AO made an addition of 4,73,10,000/-on account of unexplained cash credit of unsecured loan u/s 68 of the Income Tax Act, 1961 (The Act). However, the interest paid on the said unsecured loan was not disallowed while finalising the scrutiny assessment which resulted into under assessment of income of 11,70,726/-with short levy of tax of 5,31,778/-including interest. Accordingly, the Principal Ld. 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 Act. The Principal CIT held that the impugned assessment order has 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 AO did not disallow the interest paid on the unsecured loan treated as unexplained cash credit u/s 68 of the Act, during the scrutiny assessment.

The assessment order was therefore 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 assessee preferred appeal against the order passed by Principal CIT. ITAT relied in the decision passed by the Gujarat High Court in the case of Fakir Mohmed Haji Hasan v. CIT [2001] 247 ITR 290 and stated that it is a settled proposition of law that no deduction /allowance is allowable against such unexplained cash credit which is considered as income of the assessee and therefore, held that the Principal CIT has 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.

The Gujarat High Court in the case of Fakir Mohmed Haji Hasan v. CIT (supra) 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.

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