No Substantial Question of Law Found: SC Upholds MP HC Order Affirming ITAT’s Deletion of ₹3.73 Cr Loan Addition [Read Order]

The Supreme Court of India dismissed the Revenue’s Special Leave Petition (SLP) against the Madhya Pradesh High Court’s ruling of upholding the Income Tax Appellate Tribunal’s (ITAT) deletion of an addition of ₹3.73 crore made under Section 68 of the Income Tax Act, 1961.

The High Court held that no substantial question of law arose from the ITAT’s findings, concluding that the principle is that the Tribunal is the final fact‑finding authority in income tax matters.

The Income Tax Appeal has been filed under Section 260 of the Income Tax Act, 1961 before the High Court against the order passed by the Income Tax Appellate Tribunal (ITAT), Mumbai

The assessee, Mukul Kakar, herein is an individual and provides financial assistance. He filed his return of income for the year in consideration declaring his total income of Rs.3,49,810/-.

During the course of proceedings, the Assessing Officer (AO) noticed that the assessee is rising loans from several parties. To examine those loans, the AO issued notices under Section 133(6) of the Act to the creditors, but did not get reply from 15 creditors.

Before the AO, the assessee submitted that the creditors are not cooperating and accordingly, furnished available details as the assessee had repaid the loans to almost all the creditors prior to the commencement of present assessment proceedings.

Aggrieved by this, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) upheld the AO’s addition. The CIT(A) also depended on several precedents that placed the burden squarely on the assessee to discharge the initial onus under Section 68.

On appeal, however, the ITAT Mumbai found that the assessee had furnished sufficient details and discharged the initial burden. It held that the Revenue authorities were not justified in treating the loans as unexplained merely because certain creditors did not respond to notices. The ITAT directed the deletion of the entire addition of ₹3.73 crore.

Aggrieved, the Revenue approached the Madhya Pradesh High Court under Section 260A of the Act, contending that the ITAT’s order was perverse and raised substantial questions of law. The High Court, however, dismissed the appeal.

The revenue argued that the present case involves obtaining loans from various shell companies. It was also submitted that, as per Section 105 of the Companies Act, no person can be a Director of more than 20 companies, and in the present case, various shell companies were formed and amounts were drawn from them; therefore, the AO as well as the CIT(A) rightly passed the impugned orders.

The Court observed that the ITAT had considered all relevant material and passed a reasoned order. Importantly, the Court reiterated that unless perversity in the Tribunal’s findings is demonstrated, no substantial question of law arises.

It was observed that an appeal to the High Court from a decision of the Tribunal lies only when a substantial question of law is involved, and where the High Court concludes that a substantial question of law arises from the said order, such question(s) must be formulated. It was also observed that the expression "substantial question of law" is not defined in the Act.

The Revenue’s attempt to re‑argue factual issues under the guise of legal questions was impermissible.

Aggrieved by this order of the High Court, the revenue filed an appeal before the Supreme Court, which condoned the delay in the SLP filed by the revenue in filing, but declined to interfere under Article 136 of the Constitution. The Bench of Justices Pankaj Mithal and S.V.N. Bhatti noted that the High Court had rightly held that no substantial question of law was involved.