2014 (12) TMI 291 - AT - Income Tax

Assessment u/s 153A - Addition of unexplained gifts Genuineness of transactions established or not -Held that - For the purposes of establishing the nature and source of any credit appearing in the books of account, the burden is on the assessee in terms of the provisions of section 68 of the Act - an assessee is required to establish the identity of the creditor, creditworthiness of the creditor as well as genuineness of the transaction - assessee claims that such onus has been discharged because it has filed the return of income, copy of bank account, PAN numbers, details of assessment, confirmations, etc. of the donors - assessee and his family members had obtained bogus gifts i.e. unaccounted monies were introduced in the guise of gifts - a few transactions of gifts were surrendered by the assessee group as unexplained also - so far as the three gifts in question are concerned, there was no surrender by the assessee - the assessee could neither produce the donors and nor provide their correct addresses CIT(A) have correctly come to a finding that the genuineness of the present gifts has not been established by the assessee thus, the invocation of section 68 of the Act is upheld Decided against assessee. Addition of lesss GP declared by assessee Held that - The AO as well as the CIT(A) have succinctly brought out infirmities/discrepancies in the account books maintained by the assessee - Ostensibly, the enquiries during the course of search/survey action clearly pointed out that the trading results declared by the assessee are impaired inasmuch as the sales as well as the stock figures are recorded on estimation and not on actual basis - The excess physical stock found on the date of search also justifies the inference of the Assessing Officer that the book results are not reliable - the lower authorities made no mistake in disregarding the book results declared by the assessee and estimating the Gross Profit @ 6% - thus, the order of the CIT(A) sustaining the addition on account of low Gross Profit for the three AYs of 2000-01, 2002-03 and 2003-04 respectively Decided against assessee. Addition of unexplained cash credits u/s 68 Held that - The onus is on the assessee to establish the nature and source of the cash credits appearing in the books of account, having regard to the provisions of section 68 - the CIT(A) has reproduced the bank account statements of the creditors to show that cash deposits have been made immediately before issuing Demand Drafts to the assessee for the loans both the AO and CIT(A) was of the view that the creditors have not explained the source of such cash deposits - No doubt, the assessee furnished the income-tax particulars, etc. of the creditors, but their failure to even prima facie explain the source of cash deposits in their bank account coupled with the fact that assessee has been found indulging in introducing unaccounted income by way of cash credits, the loans cannot be considered as genuine - there is no material to infer otherwise than what has been concluded by the AO as well as the CIT(A) - the assessee has introduced his unexplained income in the guise of loans thus, the order of the CIT(A) that the source of unexplained cash credit can be assumed to have come out of the intangible additions on account of low Gross Profit is upheld Decided against assessee.

Summary

Issues Involved:
1. Addition on account of unexplained gifts.
2. Addition on account of Gross Profit declared.
3. Addition on account of unexplained cash credit.

Issue-wise Detailed Analysis:

1. Addition on Account of Unexplained Gifts:

The first issue pertains to the assessment year 2000-01, where the CIT(A) sustained an addition of Rs. 1,10,000/- on account of unexplained gifts. The Assessing Officer (AO) treated three gifts totaling Rs. 1,00,000/- as unexplained and added an additional Rs. 10,000/- for non-genuine gifts, invoking section 68 of the Income-tax Act, 1961. The assessee argued that they had provided necessary evidence such as return of income, copies of bank accounts, PAN numbers, and confirmations from the donors. However, the AO noted that the donors could not be verified as the letters sent to their addresses were returned, and the assessee failed to produce the donors or provide correct addresses. The Tribunal affirmed the lower authorities' decision, stating that the genuineness of the gifts was not established, thus upholding the addition under section 68.

2. Addition on Account of Gross Profit Declared:

The second issue involves the addition of Rs. 1,20,736/- for the assessment year 2000-01, Rs. 1,70,948/- for 2002-03, and Rs. 73,226/- for 2003-04 on account of Gross Profit (GP) declared by the assessee, a dealer in Indian Made Foreign Liquor (IMFL) and country liquor. The AO found discrepancies in the assessee's trading results, noting that sales and stock figures were recorded on an estimate basis and not maintained accurately. The AO adopted a GP rate of 6% instead of the declared rates of 5.09%, 4.65%, and 5.39% for the respective years. The Tribunal upheld the AO's decision, agreeing that the trading results were unreliable due to the discrepancies and excess physical stock found during the search, thus affirming the additions.

3. Addition on Account of Unexplained Cash Credit:

The third issue pertains to an addition of Rs. 10,50,000/- for the assessment year 2003-04 on account of unexplained cash credit under section 68. The assessee received loans from five persons, but the AO was not satisfied with the genuineness of these credits. Although the creditors confirmed the loans, they could not substantiate their creditworthiness, and cash deposits were made in their bank accounts immediately before issuing drafts to the assessee. The Tribunal upheld the AO's decision, noting the creditors' failure to explain the source of cash deposits and the assessee's history of introducing unaccounted income as cash credits.

Alternative Plea:

The assessee raised an alternative plea to consider the addition on account of low Gross Profit for telescoping against the unexplained cash credit. The Tribunal accepted this plea, allowing the addition under section 68 to be reduced by the intangible additions on account of low Gross Profit for the three assessment years, thus reducing the addition to Rs. 6,85,090/-.

Conclusion:

The Tribunal dismissed the appeals for the assessment years 2000-01 and 2002-03 and partly allowed the appeal for the assessment year 2003-04, directing the AO to restrict the addition under section 68 to Rs. 6,85,090/-. The order was pronounced in the open Court on 28th November 2014.