2013 (4) TMI 579 - AT - Income Tax

Addition u/s 68 - AY 2003-04 and 2004-05 - assessee contested against non providing of ample opportunity before making addition - Held that - In the absence of explanation regarding nature of transaction, the argument of the assessee s cannot be appreciated. When any amount found credited in the books of account of the assessee for the assessment year under consideration, the assessee is bound to explain the identity of the parties, capacity of the creditors and genuineness of the transactions. As the assessee has been given ample opportunity to lead the evidence & the assessee failed to furnish requisite details, thus no violation of principles of natural justice. Gifts received in A.Y. 2004-05 - assessee pleaded that these gifts of Rs. 6 lakhs received by the assessee from his family members and they are income-tax assessees with duly reflected in their financial statement of the respective donors - Held that - Assessee pleaded before AO that the gift was received from assessee s parents however before the CIT(A) he stated that it was received from brother, mother, father and other relatives in different denominations. Though it was pleaded that there were enough drawings from these parties to make the gift to the assessee, however, the assessee failed to establish specific withdrawal which indicates gift to the assessee. Further, considering the status of those donors, drawings made by them is not enough to make gift to the present assessee. Assessee has not provided the basic details like names, identity and addresses of the parties - addition confirmed. Against assessee. Addition u/s 68 - AY 2005-06 - Held that - Mr. Sreenivasulu is having no capacity to advance such amount of Rs. 19.65 lakhs as his only income is only Rs. 35,000 per month. See R.B. Mittal vs. CIT (2000 (8) TMI 54 - ANDHRA PRADESH High Court). Also there is no violation of principles of natural justice since the lower authorities gave ample opportunity to the assessee to put forth his case. Addition u/s 68 - AY 2006-07 - Held that - Gifts received from close relatives and friends, the assessee failed to furnish basic information such as name, identity and particulars of donors along with the purpose on which these gifts were made. See CIT vs. P. Mohanakala (2007 (5) TMI 192 - SUPREME Court) - confirm the addition. Addition u/s 68 - AY 2007-08 - Held that - As decided in CIT v. Lanco Industries Ltd. (1999 (12) TMI 45 - ANDHRA PRADESH High Court) while rejecting the Revenue appeal, the High Court observed that merely by reason of unsatisfactory explanation relating to the source of investment by the shareholders, the money invested in shares cannot be treated as income of the assessee. In order to add it to the income of the assessee there must be a further finding that in fact the shareholders were name lenders and the money allegedly invested by the really belongs to the directors of the assessee company. In the present case, the Department having accepted the returns of income filed by the ostensible shareholders, it cannot go back while making the assessment of the assessee to hold that those shareholders are money lenders and investments were unexplained. Invoking provisions of section 2(22)(e) - Addition u/s 68 - Held that - As brought to notice there was a subcontract between Sri P. Muddukrishna Reddy and M/s. AMRCL and it was offered to tax. The Assessing Officer did not bring on record the fact that no work was carried and payment was made without any work. The Assessing Officer observations are not based on any cogent material on record and rather on presumption basis. No bogus nature of the sub-contract works proved - invoking provisions of section 2(22)(e) is not justified. Addition u/s 68 - AY 2008-09 - Held that - The Department is doubting the creditworthiness of Sri Jayaram Reddy. In our opinion, there is no necessity to doubt the creditworthiness of Sri Jayaram Reddy as he has received the money from Sri Hanumantha Reddy which is duly reflected in the books of account. In these circumstances, if the Department is having any doubt it should be questioned in the hands of Sri Hanumantha Reddy only - delete the addition. Addition with regard to the addition made in the name of Surendra Babu & Smt. Saroja - Held that - As mere filing of confirmation letter does not discharge the assessee in proving the genuineness of the transaction and capacity of the creditor. Only identity is proved. Hence placing reliance in the judgement of jurisdictional High Court in the case of R.B. Mittal (2000 (8) TMI 54 - ANDHRA PRADESH High Court) confirm the addition. Addition on seized material as incurred from the unaccounted sources - Held that - In this case the addition is made on the basis of entries in the loose sheets. In the loose sheets it does not contain date. Thus these loose sheets cannot be considered as a basis for addition unless supported by corroborative evidence. The addition is based only on surmises and conjectures. It is a dumb document that cannot be acted upon as it is not supported by corroborative material to substantiate Department s version. Addition u/s 68 - AY 2008-09 - application of provisions of section 2(22)(e) for bringing the amounts received from Sri Nukala Srinivasa Rao to tax - Held that - The ratio of the decision of CIT vs. Tania Investments (P) Ltd. (2009 (3) TMI 473 - BOMBAY HIGH COURT) is squarely applicable in this case, wherein the creditors were examined by the Assessing Officer, during the assessment proceedings, who maintained the books of accounts, which could not have been brushed aside. Thus, the addition made on account of amount is not acceptable. Addition of Rs. 3 lakhs u/s. 68 in the name of Sri N. Vijay Kumar - Held that - This amount of Rs. 3,00,000 was received in cash from Mr. Vijay Kumar towards advance for purchase of land. There is no details regarding the location of the land, agreement of sale etc. Under these circumstances, no infirmity in the action of the CIT(A) in confirming the addition.

Summary

Issues Involved:

1. Sustaining of addition under Section 68 of the Income-tax Act, 1961.
2. Genuineness of transactions and capacity of creditors.
3. Treatment of gifts received.
4. Application of Section 2(22)(e) of the Income-tax Act, 1961.
5. Addition based on loose sheets and seized material.
6. Violation of principles of natural justice.

Detailed Analysis:

1. Sustaining of Addition under Section 68 of the Income-tax Act, 1961:

For the assessment years 2003-04 and 2004-05, the assessee failed to furnish necessary details regarding the nature of transactions, identity of parties, and capacity of creditors. The CIT(A) confirmed the addition of Rs. 20,95,000 and Rs. 11,18,019 respectively, as the transactions were not found to be genuine. The Tribunal upheld this decision, emphasizing the requirement for the assessee to explain the identity of the parties, capacity of the creditors, and genuineness of transactions.

2. Genuineness of Transactions and Capacity of Creditors:

For the assessment year 2005-06, the addition of Rs. 19.65 lakhs was confirmed as the assessee failed to provide sufficient evidence regarding the transaction with Mr. T. Sreenivasulu. Similarly, for the assessment year 2007-08, the Tribunal confirmed the addition of Rs. 11.70 lakhs received from M/s. NR Constructions and Rs. 13.93 lakhs from Sri Surendra Babu due to lack of evidence proving the genuineness of the transactions and capacity of the creditors.

3. Treatment of Gifts Received:

For the assessment years 2004-05 and 2006-07, the Tribunal confirmed the addition of gifts received from family members, as the assessee failed to establish specific withdrawals indicating the gifts. The Tribunal emphasized the need for basic details like names, identity, and addresses of the parties to prove the genuineness of the gifts.

4. Application of Section 2(22)(e) of the Income-tax Act, 1961:

The Tribunal addressed the application of Section 2(22)(e) in the case of advances received from Sri P. Muddukrishna Reddy. It was held that the transaction was a business transaction and not a deemed dividend, as the Assessing Officer failed to prove the bogus nature of the sub-contract works and the flow of funds from M/s. AMRCL to the assessee through Sri P. Muddukrishna Reddy.

5. Addition Based on Loose Sheets and Seized Material:

For the assessment year 2008-09, the Tribunal reversed the addition of Rs. 3,67,19,000 based on entries in loose sheets, stating that unsubstantiated loose sheets cannot be a basis for addition unless supported by corroborative evidence. The Tribunal emphasized that mere entries in loose sheets are not sufficient to prove conclusively that the assessee has indulged in certain transactions.

6. Violation of Principles of Natural Justice:

The Tribunal found no violation of principles of natural justice, as the assessee was given ample opportunity to present evidence and explain the transactions. The lower authorities' actions were deemed justified as the assessee failed to provide requisite details despite being given multiple opportunities.

Separate Judgments Delivered:

The Tribunal delivered separate judgments for each assessment year, addressing specific issues related to each case. The decisions were based on the evidence presented and the legal principles applicable to each issue.

Conclusion:

The Tribunal upheld the additions made by the CIT(A) in most cases due to the assessee's failure to provide sufficient evidence to prove the genuineness of transactions, identity of parties, and capacity of creditors. The Tribunal emphasized the need for corroborative evidence to support claims made by the assessee and dismissed arguments related to the violation of principles of natural justice.