2016 (10) TMI 1013 - AT - Income Tax

Addition made u/s.68 - genuineness of transaction - capacity of the creditors - Held that - In support of the genuineness of the transaction, not only the assessee filed the affidavits of 20 persons but each of the 20 persons appeared before the Assessing Officer in compliance to the summons issued u/s.131 of the Act and duly confirmed the genuineness of transaction before the Assessing officer. AO has merely stated that the creditors had meager income without bringing on record any material in support of the same. Such vague and unspecific and unsubstantiated observation has no value in the eyes of law. Therefore, considering the entirety of the facts of the case, find that the explanation of the assessee which was a plausible explanation was rejected by the Assessing Officer merely on the basis of suspicion or doubt and without bringing on record any positive material even after examining all the 20 persons under section 131 of the Act. A plausible explanation offered by the assessee cannot be so rejected by the Assessing Officer without bringing even an iota of material on record and even pointing out any inconsistency in the statement of the creditors recorded u/s.131 of the Act. See Sreelekha Banerjee vs CIT (1963 (3) TMI 47 - SUPREME COURT) wherein, held that the department cannot by merely rejecting unreasonably a good explanation convert good proof into no proof. - Decided in favour of assessee

Issues:
1. Addition of ?20 lakhs u/s.68 of the Act by Assessing Officer confirmed by CIT(A).
2. Discrepancy in explaining the source of cash deposit.
3. Credibility and genuineness of transactions with 20 persons.
4. Assessment of creditworthiness of the creditors.
5. Decision on the appeal filed by the assessee.

Analysis:
1. The primary issue in this case revolves around the addition of ?20 lakhs under section 68 of the Income Tax Act by the Assessing Officer, which was subsequently confirmed by the CIT(A). The assessee maintained a joint bank account with his wife, where a cash deposit of ?20 lakhs was made. The explanation provided by the assessee regarding the source of this deposit was challenged by the tax authorities, leading to the addition in question.

2. The discrepancy arose when the Assessing Officer observed that the cash deposit of ?20 lakhs made by the assessee's wife was not adequately supported by evidence. Despite affidavits from 20 individuals confirming the cash advance to the wife, the Assessing Officer questioned the genuineness of the transactions due to the lack of concrete proof regarding the source of funds and the creditworthiness of the creditors.

3. The credibility and genuineness of the transactions with the 20 persons who allegedly provided cash advances to the assessee's wife came under scrutiny. The Assessing Officer raised concerns about the financial capacity of these individuals, as they were identified as petty agriculturists without significant income sources or bank accounts. This raised doubts about their ability to provide substantial cash advances, casting suspicion on the legitimacy of the transactions.

4. Assessing the creditworthiness of the creditors became a pivotal aspect of the case. The Assessing Officer emphasized the importance of establishing not just the identity but also the financial capability of the creditors to provide the cash advances. The lack of concrete evidence supporting the agricultural income of the creditors and their ability to offer such substantial amounts in cash raised doubts regarding the legitimacy of the transactions.

5. The appeal filed by the assessee challenged the decision of the lower authorities, arguing that the explanation provided was plausible and supported by affidavits and statements from the 20 individuals involved. The Tribunal, after a thorough review of the facts and evidence presented, concluded that the Assessing Officer's rejection of the explanation was based on suspicion and lacked substantive evidence to refute the genuineness of the transactions. Consequently, the addition of ?20 lakhs was deleted, and the appeal of the assessee was allowed.

This detailed analysis highlights the key issues, arguments, and decisions made in the legal judgment, providing a comprehensive understanding of the case.

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