2010 (9) TMI 1181 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 1,79,878/- on account of unexplained opening capital.
2. Addition of Rs. 3,50,000/- on account of unexplained cash credits.

Summary:

Issue 1: Addition of Rs. 1,79,878/- on account of unexplained opening capital

The assessee, a partner in the brick kiln business of M/s Ram Gopal Maheshwari B.K.O. until 31.03.1996, claimed that the amount of Rs. 1,79,878/- introduced as capital in his new business was withdrawn from the said firm. The Assessing Officer (A.O.) was not satisfied with this explanation and made the addition as unexplained investment. The CIT(A) confirmed this addition. The assessee provided evidence of his income from salary and interest from the firm, along with income tax returns and account statements. The Tribunal found the explanation plausible and noted that the Department failed to provide contrary evidence. Citing the Supreme Court's decision in CIT vs. Smt. P.K. Noorjahan, it was held that the A.O. is not obliged to treat the source of investment as income in every case. The addition of Rs. 1,79,878/- was deleted.

Issue 2: Addition of Rs. 3,50,000/- on account of unexplained cash credits

The A.O. noted that the assessee introduced Rs. 3,50,000/- as capital in his new business on different dates and claimed this amount was transferred from his HUF account. The A.O. was not satisfied with the explanation and made the addition. The assessee provided balance sheets and income tax returns of the HUF, showing sufficient funds. However, the A.O. found discrepancies and noted that the assessee failed to produce books of accounts and relevant parties. The Tribunal found the explanation not entirely plausible and concluded that the assessee could have taken only Rs. 1,75,000/- from the HUF. Consequently, the addition was partly deleted, sustaining Rs. 1,75,000/-.

Conclusion:

The appeal was partly allowed, deleting the addition of Rs. 1,79,878/- and sustaining the addition of Rs. 1,75,000/- out of Rs. 3,50,000/-.

(Order pronounced in the open Court on 17.09.2010).