2015 (10) TMI 83 - HC - Income Tax

Addition made under Section 41(1) - failure to produce any explanation/documentary evidence during the course of assessment proceedings and as well as before Ist appellate authority - ITAT deleted the addition - Held that - It has been categorically recorded by the Tribunal that the assessee had submitted the copies of accounts and complete postal addresses of all the parties on record which had not been held to be false or fraudulent by the Assessing Officer and therefore, the assessment had to be made on that basis. The assessment has to be made on the basis of such copies of account when they are not proved false or fraudulent. Notwithstanding the fact, the rejection of books of account, the matter disclosed by the assessee, other material has to be collected by the AO which should have formed the basis of computation of income. In the present case, the assessee having submitted the copies of accounts and complete postal addresses of all the parties is a matter of record and the AO has not collected any adverse material. The assessee having proved the identity, capacity and creditworthiness of said persons and therefore cannot be subject matter of addition. Thus addition deleted - Decided in favour of assessee.

Summary

Issues involved:
1. Deletion of addition under Section 41(1) of the Income Tax Act, 1961.
2. Deletion of addition of unexplained cash credit/unsecured loans.
3. Perversity in the finding regarding the amount pertaining to the preceding year.
4. Perversity in the finding regarding outstanding amount for many years.

Analysis:

Deletion of addition under Section 41(1) of the Income Tax Act, 1961:
The revenue appealed against the order of the Income Tax Appellate Tribunal (ITAT) deleting the addition made under Section 41(1) of the Income Tax Act, 1961. The Tribunal held that the assessee had submitted copies of accounts and complete postal addresses of all parties, which were not deemed false or fraudulent by the Assessing Officer. The Tribunal found that the liability in question pertained to the preceding year and was not ceased to be a liability. The Tribunal emphasized that the Assessing Officer did not provide any evidence that the copies of accounts submitted were false or fraudulent. The Tribunal concluded that the assessment should be based on the submitted accounts when they are not proven to be false or fraudulent.

Deletion of addition of unexplained cash credit/unsecured loans:
The Tribunal also deleted the addition of unexplained cash credits/unsecured loans made by the Assessing Officer. The Tribunal found that the assessee had proven the identity, capacity, and creditworthiness of the individuals involved in the transactions. The Tribunal noted that the balances were outstanding for many years, and the individuals were assessed to tax with PAN details provided. The Tribunal concluded that the additions were wrongly confirmed by the Commissioner of Income Tax (Appeals) and directed their deletion.

Perversity in findings regarding preceding year and outstanding amount:
The Tribunal's findings regarding the amount pertaining to the preceding year and the outstanding amount for many years were challenged by the revenue. However, the Tribunal's reasoning was upheld as not erroneous or perverse. The Tribunal emphasized that the assessee had submitted relevant documents and addresses, and the Assessing Officer did not provide any adverse material to refute the submissions. The Tribunal highlighted that the Assessing Officer cannot base assessments on conjectures or suspicions and must rely on concrete evidence.

In conclusion, the High Court dismissed the revenue's appeal, finding no merit in challenging the Tribunal's decision. The Court upheld the Tribunal's findings regarding the deletion of additions under Section 41(1) and unexplained cash credits/unsecured loans, emphasizing the importance of concrete evidence in assessments and the burden of proof on the Assessing Officer.