2012 (9) TMI 827 - AT - Income Tax

Unexplained cash credits u/s 68 AO added the entire amount from sale of shares as income from undisclosed sources Held that - As the purchase of shares, sold during the respective assessment years was already disclosed by the assessee in her regular books of account as well as in the returns of income filed. AO made the addition mainly relying on the statement of a broker. The AO was relying on the statement of a person, the onus was on the AO to enforce the attendance of that person for cross examination of the assessee but no such opportunity was provided in spite of the fact that the assessee requested to cross examine the share broker who earlier had confirmed but later on contradicted the confirmatory letter. Therefore appeal decides in favour of assessee Addition on account of low household withdrawal - AO had noted that certain invoices of expenditure were found from the premises of the assessee during the search - Held that - income of the assessee AO had considered withdrawal made by the assessee only-he completely ignored the withdrawals made by the husband of the assessee. The assessee, her husband and HUF were withdrawing sufficient amounts in all the five assessment years under consideration. Therefore appeal decides in favour of assessee.

Issues Involved:
1. Deletion of addition made by the AO under Section 68 of the Income-tax Act, 1961 (Act) regarding unexplained cash credits from the sale of shares.
2. Deletion of addition in respect of low household withdrawals.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income-tax Act:

The AO challenged the CIT(A)'s decision to assess the income from the sale of shares under "Capital Gains" instead of treating it as unexplained cash credits under Section 68 of the Act. The AO argued that the transactions were accommodation entries to convert unaccounted money into accounted money through long-term capital gains (LTCG). The AO relied on the statement of Shri Manoj Agarwal and inquiries conducted by the Investigation Wing. The AO concluded that the share transactions were sham and manipulated, thereby treating the sale proceeds as unexplained cash credits.

The CIT(A) decided in favor of the assessee, holding that the AO did not provide sufficient evidence to prove that the cash deposits in third-party bank accounts belonged to the assessee. The CIT(A) noted that the AO failed to establish any material connection between the appellant and the cash deposits in the bank accounts of M/s Parijan Trading and Commerce Pvt. Ltd. and M/s Apnapan Vyapaar Ltd. The CIT(A) found that the assessee had provided all necessary documents to substantiate the genuineness of the transactions, including contract notes, share certificates, and bank statements. The CIT(A) also relied on previous orders from the ITAT, Lucknow, and other judicial precedents which supported the assessee's claims.

The ITAT upheld the CIT(A)'s decision, agreeing that the assessee had discharged her onus by providing sufficient documentary evidence. The ITAT noted that the AO did not dispute the authenticity of the documents provided by the assessee. The ITAT also emphasized that the AO did not provide the assessee with an opportunity to cross-examine Shri Manoj Agarwal, which was against the principles of natural justice. The ITAT concluded that the transactions were genuine and that the additions made by the AO were unwarranted.

2. Deletion of Addition in Respect of Low Household Withdrawals:

The AO made additions to the assessee's income on the grounds of low household withdrawals, arguing that the assessee's disclosed withdrawals were insufficient considering her lavish lifestyle. The AO estimated the household expenses and made additions accordingly.

The CIT(A) deleted the additions, noting that the assessee's family had shown sufficient household withdrawals totaling Rs. 55.65 lakhs for the assessment years under appeal. The CIT(A) found that the AO's additions were purely on an estimated basis without any concrete evidence. The CIT(A) also noted that the household expenses were met out of the withdrawals disclosed by the assessee and her husband, Shri Praveenkumar Arora. The CIT(A) concluded that the AO's additions were unwarranted and deleted them.

The ITAT upheld the CIT(A)'s decision, agreeing that the withdrawals made by the assessee and her husband were sufficient to cover the household expenses. The ITAT found that the AO had ignored the withdrawals made by the husband of the assessee and that the additions were made on an ad hoc basis. The ITAT concluded that the CIT(A)'s deletion of the additions was based on sound reasoning and upheld the order.

Conclusion:

The ITAT dismissed the appeal filed by the AO, upholding the CIT(A)'s decision to delete the additions made under Section 68 of the Income-tax Act and in respect of low household withdrawals. The ITAT found that the assessee had provided sufficient evidence to substantiate the genuineness of the transactions and that the AO's additions were unwarranted. The ITAT emphasized the importance of providing the assessee with an opportunity to cross-examine witnesses and the need for concrete evidence to support any additions made by the AO.

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