2014 (11) TMI 509 - AT - Income Tax

Capital contribution made in partnership - AO after enquiries remained unsatisfied and made addition as unexplained credit Loans from various parties - Genuineness of the credit Held that - The facts related to all the parties are somewhat similar in nature, the requirement of proving the genuineness of investment is always on the assessee - If an explanation is tendered that the source of such investment is some loan or gift from someone else, then the assessee is obliged to prove the genuineness of such explanation by showing the identity of the payer, his capacity to pay and the genuineness of the transaction - The principles as applicable to section 68 in this regard apply with full vigor to section 69 as well in such a situation - the assessee s brother Shri Rajender Kumar sold his house on 7.3.2006 for a consideration of ₹ 9.54 lac out of which a sum of ₹ 2.50 lac was claimed to have been gifted on 15.4.2006 - The AO has not disputed the fact about Shri Rajender Kumar selling his house property for the stated consideration - The mere fact that the gift was made after one month and a few days cannot disprove the genuineness of the gift when it was a brother helping his real brother, who, in turn, was setting up his factory and further the source of the gift is specific and substantiated. The loan of ₹ 1 lac was given by one brother to another through cheque - Source of the amount in the bank account is evident from the AO s own recording that the account of Shri Rajender Kumar was overdrawn to that extent - As the explanation about the source of deposit in his bank account is specific and substantiated, CIT(A) was fully justified in deleting the addition - Smt. Sumitra Devi was admittedly an employee drawing a salary of ₹ 10,000/- 12,000/- per month. She withdrew a cash of ₹ 57,000/- from her bank account on 10.2.2006 and the sum of ₹ 50,000/- out of that was re-deposited on 11.7.2006 in her bank account, for which a cheque was issued to the assessee as loan - she withdrew a sum of ₹ 57,000/- from her regular bank account which was claimed to have been re-deposited for giving loan to the assessee - The AO has simply rejected the assessee s contention of re-deposit of cash without pointing out the utilization of such amount elsewhere - Once it is admitted that a particular sum was withdrawn from bank, then its redeposit cannot be assailed by the Revenue without showing the utilization of such amount elsewhere - As the amount of ₹ 57,000 was withdrawn from her known sources of income, its redeposit cannot be questioned. The assessee claimed that the amount of ₹ 50,000/- advanced by Shri Dushyant Kumar was received as gift from his father, an agriculturist who gave this amount to his son for advancement of loan to the assessee - There is no evidence worth the name to substantiate the agricultural income in the hands of Shri Om Prakash out of which an alleged gift of ₹ 50,000/- was made to Sri Dushyant Kumar - It is a case of vague and unsubstantiated explanation - In the absence of any documentary evidence for the sale of crop, the genuineness of this credit cannot be accepted the addition is restored. The assessee concocted a story of having received a gift of ₹ 3 lac from his father, Shri Ram Kishan Yadav - There is no reliable evidence to substantiate the sale proceeds of ₹ 4 lac of agricultural produce out of which the alleged gift of ₹ 3 lac was made to the assessee - The fact that Shri Ram Kishan Yadav is drawing pension of ₹ 6,000/- per month and had never credit balance of more than ₹ 7,000/- in his bank account, do support the AO s contention about the non-genuineness of the gift alleged to have been received by the assessee - the addition is restored. Shri Phul Chand, father of Smt. Sunita Yadav executed a gift deed - It has been deposed in this gift deed that Shri Phul Chand gave a gift to his daughter by means of cheque and the source of the gift was also explained to be out of his property, of which he was the absolute owner - The AO did not find any force in the specific explanation given to him about the source of the deposit - Neither Shri Phul Chand Yadav was summoned for examination, nor any other inquiry was conducted to disbelieve the specific and authenticated explanation about the gift made by a father to his daughter - the assessee succeeded in discharging the primary onus cast upon him with regard to this loan transaction - Decided partly in favour of revenue.

Summary

Issues Involved:
1. Unexplained credit under Section 68.
2. Genuineness of gifts and loans.
3. Source of capital contribution in a partnership firm.
4. Protective vs. substantive additions.

Issue-wise Detailed Analysis:

1. Unexplained Credit under Section 68:
The primary issue revolves around the unexplained credit entries in the books of the assessee, specifically under Section 68 of the Income Tax Act. This section stipulates that any sum found credited in the books of an assessee for which no satisfactory explanation about the nature and source is provided, may be charged to income tax as the income of the assessee. The judgment emphasizes that the primary onus is on the assessee to prove the genuineness of the credit entries by demonstrating the identity of the creditor, their capacity to pay, and the genuineness of the transaction. The court cited several precedents, including CIT vs. P. Mohan Kala, Sajan Dass & Sons vs. CIT, and CIT vs. Anil Kumar, to reinforce this principle.

2. Genuineness of Gifts and Loans:
The judgment scrutinizes various gifts and loans claimed by the assessee to ascertain their genuineness. For instance, a gift of Rs. 2.5 lakh from Shri Rajender Kumar was accepted as genuine because it was supported by the sale of a house and was deemed a brother helping his real brother. Conversely, a gift of Rs. 3 lakh from Shri Ram Kishan Yadav was rejected due to lack of reliable evidence substantiating the sale proceeds of agricultural produce. Similarly, loans from various individuals were analyzed. Loans supported by specific and substantiated explanations were accepted, while those with vague or unsubstantiated claims were rejected. For example, a loan of Rs. 1 lakh from Shri Rajender Kumar was accepted as it was given through cheque and the source was an overdraft account. However, loans from individuals like Shri Dushyant Kumar and Shri Ramjas Yadav were rejected due to lack of evidence proving the source of the funds.

3. Source of Capital Contribution in a Partnership Firm:
The case also examined the capital contributions made by partners in the firm M/s Golden Tex. The contributions were scrutinized to verify the sources of funds. For instance, the contribution of Rs. 30.84 lakh by Shri Nihal Singh Yadav was questioned. The court analyzed various loans and gifts claimed as sources for this contribution. Some were accepted, such as the loan from Shri Kehar Singh, which was supported by the sale of agricultural land. Others were rejected, like the loan from Shri Ashok Kumar, due to lack of evidence about the source of funds. The judgment highlights the necessity for specific and substantiated explanations to prove the genuineness of capital contributions.

4. Protective vs. Substantive Additions:
The judgment also addresses the concept of protective and substantive additions. The Assessing Officer (AO) had made additions on a protective basis in the hands of the firm and on a substantive basis in the hands of the individual partners. The court examined the genuineness of the transactions in the hands of the partners. For instance, the addition of Rs. 26 lakh in the hands of Shri Rajan Kumar Yadav was scrutinized, and various loans contributing to this amount were analyzed. Some loans, like the one from Shri Kehar Singh, were accepted, while others, like the one from Shri Ashok Kumar, were rejected. The court concluded that there was no need to deal with the protective additions in the hands of the firm once the substantive additions in the hands of the partners were decided.

Separate Judgments by Judges:
The judgment does not indicate separate judgments delivered by the judges. Therefore, the analysis is presented as a consolidated decision by the bench.

Conclusion:
The appeals were partly allowed, with some additions being confirmed and others deleted based on the genuineness and substantiation of the explanations provided by the assessee. The judgment underscores the importance of providing specific and substantiated explanations to prove the genuineness of credit entries, gifts, and loans in the context of income tax assessments.