2015 (9) TMI 1182 - AT - Income Tax

Disallowance of unexplained investment - CIT(A) deleted the addition - Held that - In the facts and circumstances of the case, the CIT(A) has rightly observed that the assessee has discharged his onus fully by filing the complete details of bank transactions, name and address, Permanent Account Number, above all declaration on oath in shape of Affidavit wherein the said Party Rakesh Panchal H.U.F. has owned up the entire transactions of the Bank account. It is for the Assessing Officer of Rakesh Panchal HUF to verify as to why there is no income generated from several transactions in the bank account or for that matter conduct other inquiries. The assessee having discharged its onus clearly confirming that whatever transactions were outside the books have been owned up before the Settlement Commission and these transactions of Rakesh Panchal HUF are not owned up before the Settlement Commission and before the Assessing Officer the said person himself was owning up all these transaction, there is no question of making addition of ₹ 58,01,339/- as unexplained investment. The addition made was therefore rightly deleted by CIT(A) - Decided in favour of assessee. Disallowance of unexplained expenditure - CIT(A) deleted the addition - Held that - We find that CIT(A) has rightly deleted the impugned addition by observing that the law is very clear that when the Assessing Officer has not found any evidence of assessee having incurred any expenditure for discounting of cheques, the addition made only on presumption and suspicion cannot be made u/s 69C. The addition is accordingly deleted. Nothing contrary has been brought to our knowledge by the Revenue.- Decided in favour of assessee. Unexplained cash credits u/s 68 - CIT(A) deleted the addition - Held that - No infirmity in the order of CIT(A), since he has given reasoned finding that the Auditors had obtained all material and confirmations, which explained the genuineness, capacity and creditworthiness of all the creditors and credits appearing in bank account. After verifying and satisfying themselves, the Auditors had finally given their opinion that income earned in the above 10 concerns/persons from mutual funds, share investment and other income. Thus all other bank entries and credits therein stand clearly explained and could not be considered as unexplained. In view of this, the addition made deserved to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 58,01,339 on account of unexplained investment for AY 2002-03.
2. Deletion of disallowance of Rs. 1,20,670 on account of unexplained expenditure for AY 2002-03.
3. Deletion of disallowance of Rs. 58,61,657 on account of unexplained cash credits under Section 68 of the Income Tax Act for AY 2005-06.

Detailed Analysis:

Issue 1: Deletion of disallowance of Rs. 58,01,339 on account of unexplained investment for AY 2002-03
The Assessing Officer (AO) added Rs. 58,01,339 as unexplained investment based on transactions through a bank account operated by Shri Rakesh Kumar Panchal HUF, which were not disclosed to the department. The AO argued that it was improbable for an HUF with no taxable income to have such large transactions and treated the amount as unexplained investment.

The CIT(A) deleted the addition, noting that the assessee had filed an affidavit from Shri Rakesh Kumar Panchal HUF confirming the transactions belonged to the HUF and not the assessee. The CIT(A) emphasized that once the affidavit was filed, the onus shifted to the AO to further investigate, which was not done. The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee had discharged its onus by providing complete details and that the AO failed to provide contrary evidence.

Issue 2: Deletion of disallowance of Rs. 1,20,670 on account of unexplained expenditure for AY 2002-03
The AO added Rs. 1,28,670 as unexplained expenditure under Section 69C, presuming that the assessee incurred discounting charges at 0.5% for cheque discounting through a Shroff. The AO's basis was the receipt of Rs. 2.57 crores from sundry debtors, which were discounted and deposited into the accounts of M/s Krishna Finance and M/s Shriji Trading & Investments.

The CIT(A) deleted the addition, stating that the AO had no evidence of the assessee incurring such expenditure and that the addition was based solely on presumption and suspicion. The Tribunal upheld the CIT(A)'s decision, noting that the law requires evidence of actual expenditure for an addition under Section 69C, which the AO did not have.

Issue 3: Deletion of disallowance of Rs. 58,61,657 on account of unexplained cash credits under Section 68 of the Income Tax Act for AY 2005-06
The AO added Rs. 56,61,60,657 as unexplained cash credits, considering all entries in various bank accounts as unexplained. The assessee argued that the assessment was rushed, preventing them from providing detailed explanations. A Special Tax Audit was conducted, and the Special Auditor's report explained the entries, confirming the genuineness, capacity, and creditworthiness of the creditors.

The CIT(A) deleted the addition, relying on the Special Auditor's report, which explained the entries and identified Rs. 68,55,384 as income from mutual funds, share investments, and other sources. The CIT(A) noted that the assessee had already offered Rs. 72,00,000 as unexplained income before the Settlement Commission, which included the Rs. 68,55,384. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the reasoning and noting that the Revenue could not rebut the findings.

Conclusion:
Both appeals filed by the Revenue were dismissed, with the Tribunal upholding the CIT(A)'s decisions to delete the disallowances for unexplained investment, unexplained expenditure, and unexplained cash credits. The Tribunal found that the assessee had adequately discharged its onus and that the AO failed to provide sufficient contrary evidence.