2020 (3) TMI 1385 - AT - Income Tax

Unexplained credit/ advances - Addition of closing credit balances - addition includes three items received by the assessee from his spouse and two other persons - HELD THAT - Addition of the two amounts from other persons cannot be sustained because these are opening balances and not received in the present year Advance from a wife - No specific section mentioned to make the addition - About the third amount we find that his is a fact that no section is mentioned by the AO or CIT (A) for making this addition and for this reason alone, the addition is bad in law as per the tribunal order cited by the learned AR of the assessee having been rendered in the case of Smt. Sudha Loyalka vs. ITO 2018 (7) TMI 1892 - ITAT DELHI wherein it was held that non mentioning the precise section makes the addition bad in law. Even if we accept the argument of revenue that this addition is u/s 68 because this addition is made by the AO by holding that loan shown by the assessee is added because creditworthiness of the loan creditor is not established, we are of the considered opinion that the assessee has established the creditworthiness of his wife by bringing a certificate of Village Administrative Officer that the wife of the assessee is holding 5 Acres of Agricultural Land and she is growing Banana, Cabbage, Beans, Carrot, Ragi, Neelagiri and other fruits and vegetables and her annual income is certified by him at ₹ 12 Lacs. For this reason also, this addition is not justified - Assessee appeal allowed.

Summary

Issues involved: Appeal against CIT (A) Order for Assessment Year 2012-13 - Addition made by AO of ?57,09,961 - Non-specification of section for addition - Validity of additions of amounts received from spouse, Mr. Krishna Reddy, and Mr. Lakshman A - Creditworthiness of loan creditor - Application of tribunal order in Smt. Sudha Loyalka vs. ITO case.

Analysis:
1. The appeal was filed against the CIT (A) Order for the Assessment Year 2012-13, challenging the addition of ?57,09,961 made by the AO. The assessee raised six grounds, with the main grievance focused on the mentioned addition.

2. During the hearing, the AR of the assessee referred to a tribunal order in the case of Smt. Sudha Loyalka vs. ITO, highlighting the importance of specifying the section under which an addition is made. The AR argued that the AO and CIT (A) did not specify the section for the addition of ?57,09,961, making it legally flawed. The AR also pointed out that amounts received from Mr. Krishna Reddy and Mr. Lakshman A were actually opening balances, not received in the present year, rendering those additions invalid.

3. The AR further contended that the addition of ?30,21,961 from the spouse was unjustified. The AR presented a certificate from the Village Administrative Officer certifying the spouse's capacity to advance the amount, based on agricultural income. The AR relied on the judgment of the Hon'ble Karnataka High Court in CIT vs. Sridev Enterprises to support this argument.

4. The Revenue supported the lower authorities' orders but failed to counter the argument regarding the opening balances and the lack of specification of the section for the addition. The Revenue disputed the creditworthiness of the spouse based on the certificate provided, citing insufficient details about the crops' quantity, rate, and buyers.

5. The Tribunal held that the additions of ?17.44 lacs and ?9.44 lacs, representing opening balances, were unsustainable. Regarding the ?30,21,961 addition, the Tribunal noted the absence of a specified section for the addition, following the precedent set in the Smt. Sudha Loyalka case. The Tribunal found that the assessee had established the creditworthiness of the spouse through the certificate provided, leading to the deletion of all three additions.

6. Consequently, the Tribunal allowed the assessee's appeal, emphasizing the importance of specifying the relevant section for any addition and ensuring the creditworthiness of the loan creditor is adequately demonstrated.