2016 (1) TMI 717 - AT - Income Tax

Unexplained deposits in the assesse s bank account u/s.68 - AO arrived at the decision to make addition in the hands of the assessee because all the 4 prospective buyers had not filed the return of income and substantiated their sources of income for the amount advanced to the assessee - CIT(A) deleted the addition - Held that - From the facts of the case it is evident that the assessee had received cash from proposed buyers of the flat and he has also submitted confirmation statement from them. Since the approval of the construction could not be obtained, the assessee has returned the amount received. Further, Ld. CIT (A) has rightly observed that the following facts - i) The assessee is an individual and has no business activities. ii) The money deposited in the bank a/c was not utilized by the assessee in any manner. iii) Subsequently the cash deposited in the bank were refunded to the prospective buyers of the flats. iv) The joint developer Sri M.Raja Marrison also confirmed to the transactions. We failed to understand as to why the Ld. Assessing Officer wants to make addition in the hands of the assessee when all the four prospective buyers have confirmed that they advanced the cash to the assessee. Failure on the part of the buyers of the flat to establish their source of income cannot be made as the reason to make addition in the hands of the assessee without out examining them when they themselves had admitted for having advanced the amount to the assessee. - Decided in favour of assessee.

Issues Involved:
1. Legitimacy of unexplained deposits in the assessee's bank account under Section 68 of the Income Tax Act.
2. Validity of the assessee's explanation regarding the source of the deposits.
3. Justification for the addition of Rs. 50,15,000 by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Legitimacy of Unexplained Deposits in the Assessee's Bank Account Under Section 68 of the Income Tax Act:
The core issue in the appeal was the addition of Rs. 50,15,000 by the Assessing Officer (AO) as unexplained deposits under Section 68 of the Income Tax Act. The AO found discrepancies in the assessee's explanation regarding the deposits in the joint bank account held with Sri M. Raja Marrison. The AO noted that the confirmation letters from the four individuals who allegedly advanced the money did not address the assessee's wife and lacked substantial evidence of the savings claimed. Further, the AO observed contradictions between the bank statements and the assessee's claims, such as discrepancies in the amounts deposited and withdrawn.

2. Validity of the Assessee's Explanation Regarding the Source of the Deposits:
The assessee explained that the deposits were advances received from four prospective buyers for the construction of flats on a property jointly owned with his wife. The assessee provided confirmation letters from the buyers and stated that the amounts were returned when the construction approvals could not be obtained. However, the AO rejected this explanation, citing several reasons, including the lack of documentary evidence such as agreements, receipts, and the unusual nature of cash transactions. The AO also questioned the feasibility of the proposed construction project and the credibility of the buyers' statements.

3. Justification for the Addition of Rs. 50,15,000 by the Assessing Officer:
The AO justified the addition by highlighting the inconsistencies and lack of supporting evidence in the assessee's claims. The AO pointed out that the buyers had not filed income tax returns and failed to provide substantial proof of their capacity to advance such large sums. Additionally, the AO noted that the joint developer, Sri M. Raja Marrison, was not qualified or experienced in construction, further casting doubt on the genuineness of the transactions.

Findings of the Commissioner of Income Tax (Appeals) [CIT(A)]:
The CIT(A) deleted the addition, observing that the assessee, a retired government employee, had no business activities and did not utilize the deposited money for any purpose. The CIT(A) noted that the deposits were made between June and September 2009 and were subsequently withdrawn to refund the buyers. The CIT(A) found the assessee's claim of receiving advances for the proposed construction to be genuine, considering the local practices in Tondiarpet, a middle-class area. The CIT(A) also emphasized that the joint developer, Sri M. Raja Marrison, confirmed the transactions and accepted the advances as part of his business receipts, offering to pay tax on them.

Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee had provided sufficient evidence, including confirmation statements from the buyers and the joint developer. The Tribunal found no justification for the AO's addition, noting that the failure of the buyers to file income tax returns or substantiate their sources of income did not warrant an addition in the hands of the assessee. The Tribunal concluded that the CIT(A)'s order was judicious and appropriate.

Conclusion:
The appeal of the Revenue was dismissed, and the addition of Rs. 50,15,000 under Section 68 of the Income Tax Act was deleted, with the Tribunal affirming the CIT(A)'s findings and rationale. The Tribunal emphasized the importance of the evidence provided by the assessee and the joint developer's confirmation of the transactions.

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