2016 (4) TMI 210 - AT - Income Tax

Addition u/s 68 - Association of persons (AOP) or not - CIT(A) treating the cash as loan/deposits and adding to total income as non genuine loan/deposit u/s 68 - Held that - As in the eyes of law there is no evidence which the assessee has shown about the legal existence of an AOP. Income-tax Dpartment can assess an entity as an AOP only if it has a separate PAN and there is no mechanism in the statute for including the income of an AOP along with return of an individual. Therefore, we do not find any basis in the submission of ld. AR that there actually existed any AOP and therefore, the cash received by the assessee from his relatives cannot be treated as a contribution by the relatives towards the share trading business under a common AOP. The assessee has relied on various judicial pronouncements. However, the facts discussed in these judgments are different from the facts of the case of assessee and therefore, we dismiss the contentions of assessee for accepting the existence of an AOP. We find that assessee has not been able to prove the identity, creditworthiness and genuineness of the transactions of cash loan received from the above three parties and merely seems to be an adjustment to prove the source of cash in the books of account. For the lack of requisite evidences and information, we are unable to accept the contentions of ld. AR and we are of the opinion that ld. Assessing Officer has rightly made the addition u/s 68 of the Act on account of cash credit for the sum received from above said three parties. - Decided against assessee.

Issues Involved:
1. Justification of treating cash of Rs. 6,09,500/- as non-genuine loan/deposit under Section 68 of the IT Act.
2. Disbelief in the claim that Rs. 6,09,500/- was collected from members of an AOP/BOI for share trading business.

Issue-Wise Detailed Analysis:

1. Justification of treating cash of Rs. 6,09,500/- as non-genuine loan/deposit under Section 68 of the IT Act:

The assessee, engaged in the business of trading in dyes, filed a return declaring a total income of Rs. 2,22,101/- for the assessment year 2008-09. During scrutiny, it was observed that the assessee had deposited Rs. 11,85,000/- in his bank account. The assessee claimed the source was an opening cash balance and cash received from relatives for share trading business under an Association of Persons (AOP). The Assessing Officer (AO) found no formal agreement, PAN, or separate books for the AOP, and thus treated Rs. 6,09,500/- as unaccounted cash deposit under Section 68 of the IT Act. This was upheld by the CIT(A), who noted that the AOP was never formalized, had no bank account, PAN, or tax assessment, and the contributions were deposited in the assessee's account, indicating the money belonged to the assessee. The CIT(A) also rejected the confirmations of loans from relatives as self-serving documents.

2. Disbelief in the claim that Rs. 6,09,500/- was collected from members of an AOP/BOI for share trading business:

The Tribunal examined whether an AOP existed and found no agreement between members, no separate PAN, and all cash received was part of the financial statements in the assessee's individual return. Thus, there was no legal existence of an AOP, and the cash received from relatives could not be treated as contributions towards a share trading business under a common AOP. The Tribunal dismissed the assessee's contention of an AOP and upheld the addition under Section 68.

Detailed Analysis:

Existence of AOP:

The Tribunal found no evidence of a formal AOP. There was no agreement, separate PAN, or independent financial statements for the AOP. All transactions were included in the individual return of the assessee, negating the claim of a separate AOP. The Tribunal concluded that the cash received from relatives was not part of any AOP and upheld the AO's decision.

Addition under Section 68:

The Tribunal reviewed the cash flow for the financial year 2007-08. It accepted the opening cash balance of Rs. 1,67,500/- and the cash addition of Rs. 25,500/- from salary and bonus. It also accepted cash loans totaling Rs. 98,100/- from six parties, each less than Rs. 20,000/-, as genuine and not violating Section 269SS. However, it found the assessee failed to prove the identity, creditworthiness, and genuineness of cash loans totaling Rs. 3,20,000/- from three parties, and upheld the addition under Section 68 for this amount.

Conclusion:

The Tribunal partially allowed the appeal, deleting the addition of Rs. 2,91,100/- and sustaining the addition of Rs. 3,18,400/-. The final judgment was pronounced on 1st March 2016, partially upholding the CIT(A)'s order and providing partial relief to the assessee.

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