2006 (1) TMI 472 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 10 lakhs by CIT(A) as unexplained investment.
2. Validity of the transaction and receipt of Rs. 10 lakhs as on-money.
3. Applicability of Section 68 of the Income-tax Act.
4. Requirement of corroborative evidence and cross-examination of witnesses.
5. Similarity of facts for assessment years 1996-97 and 1997-98.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 10 Lakhs by CIT(A):
The revenue's primary grievance was that the CIT(A) erred in deleting the addition of Rs. 10 lakhs, which was considered unexplained investment by the Assessing Officer (AO). The CIT(A) held that the assessee had properly explained the receipt of Rs. 10 lakhs, and it could not be treated as unexplained investment.

2. Validity of the Transaction and Receipt of Rs. 10 Lakhs as On-Money:
The assessee claimed to have sold agricultural land and received Rs. 16.5 lakhs, of which Rs. 10 lakhs was received through a bearer cheque from M/s. Karthik Enterprises. The AO questioned the genuineness of this transaction, noting discrepancies in the statements of the assessee and the purchaser, Shri Poddar. The AO concluded that the assessee failed to establish that the Rs. 10 lakhs represented consideration from Shri Poddar, treating it as unexplained income. However, the CIT(A) accepted the assessee's explanation, noting that the land prices were higher than recorded in the documents and the assessee's small Kirana shop could not generate such substantial income from undisclosed sources.

3. Applicability of Section 68 of the Income-tax Act:
The AO argued that the addition was for unexplained credit as mentioned in the diary, and the onus was on the assessee to explain the sources. The CIT(A) observed that Section 68 applies when any sum is found credited in the books of account maintained by the assessee. Since the diary was not considered a formal book of accounts, the CIT(A) held that Section 68 was not applicable. The Tribunal noted that if the diary is maintained as a memorandum book, it could be considered a book under Section 68, and the AO should examine whether it qualifies as such.

4. Requirement of Corroborative Evidence and Cross-Examination of Witnesses:
The assessee requested the cross-examination of the proprietor of M/s. Karthik Enterprises and other witnesses to establish the genuineness of the transaction. The AO did not allow this request and failed to locate the proprietor of M/s. Karthik Enterprises. The CIT(A) emphasized the need to consider the surrounding circumstances and the assessee's inability to earn such huge income from undisclosed sources. The Tribunal agreed that the assessee should be given sufficient opportunity to provide evidence and cross-examine witnesses, setting aside the assessment for further examination.

5. Similarity of Facts for Assessment Years 1996-97 and 1997-98:
For the assessment year 1997-98, the assessee sold agricultural land to Shri H.P. Nagendra, and similar issues arose regarding the receipt of on-money and the recording of transactions in the diary. The AO did not accept the amounts as received from the sale of land. Given the similarity of facts, the Tribunal set aside the assessment for the assessment year 1997-98 as well.

Conclusion:
The appeals were treated as allowed for statistical purposes, with the Tribunal setting aside the assessments for both assessment years 1996-97 and 1997-98, directing further examination and providing the assessee an opportunity to present corroborative evidence and cross-examine relevant witnesses.