2012 (11) TMI 1170 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 25,00,000 as income from undisclosed sources.
2. Enhancement of addition by Rs. 2,12,06,226 by CIT(A).
3. Applicability of Section 68 regarding realization from debtors.
4. Substitution of one asset by another and applicability of Section 68.
5. Power of CIT(A) to enhance income beyond the subject matter of assessment.
6. Request for deletion of addition and cancellation of penalty proceedings u/s 271(1)(c).

Summary:

1. Addition of Rs. 25,00,000 as income from undisclosed sources:
The Assessing Officer (AO) added Rs. 25,00,000 to the assessee's income as undisclosed sources, observing that the assessee could not explain cash deposits totaling Rs. 50,09,700 in a joint bank account.

2. Enhancement of addition by Rs. 2,12,06,226 by CIT(A):
The CIT(A) enhanced the income by Rs. 2,12,06,226, making the total addition Rs. 2,37,06,226. The CIT(A) noted that the assessee failed to explain the source of cash deposited in the joint bank account and invoked Section 68, stating that the assessee did not provide necessary details to substantiate the claim that the cash was received from debtors.

3. Applicability of Section 68 regarding realization from debtors:
The CIT(A) held that the provisions of Section 68 are applicable as the assessee failed to explain the nature and source of the cash credited in the books of accounts. The assessee's argument that Section 68 does not apply to the substitution of one asset by another was rejected.

4. Substitution of one asset by another and applicability of Section 68:
The CIT(A) disagreed with the assessee's contention that Section 68 is not applicable in cases where one asset is substituted by another. The CIT(A) emphasized that the assessee must explain the source of any sum credited in the books, regardless of whether it creates a new liability or replaces an existing asset.

5. Power of CIT(A) to enhance income beyond the subject matter of assessment:
The CIT(A) justified the enhancement, stating that no new source of income was being assessed. The enhancement was based on the same cash deposits considered by the AO, and thus within the CIT(A)'s power.

6. Request for deletion of addition and cancellation of penalty proceedings u/s 271(1)(c):
The Tribunal found that the revenue authorities did not reject the books of accounts maintained by the assessee, which showed substantial reduction in sundry debtors and creditors. Consequently, the Tribunal held that the additions made by the AO and the enhancement by the CIT(A) were not justified and deleted both.

Conclusion:
The Tribunal allowed the appeal, deleting the addition of Rs. 25,00,000 made by the AO and the enhancement of Rs. 2,12,06,226 by the CIT(A). The appeal of the assessee was allowed, and the order was pronounced on 9.11.2012.