2016 (4) TMI 636 - AT - Income Tax

Unexplained/undisclosed payment - Held that - In the present case, there is nothing on record to suggest that the Revenue Authorities could unearth any evidence/tangible material against the assessee, either during the course of assessment proceedings or appellate proceedings, to show that the assessee has paid the money of ₹ 18 lakhs to Ms. Zahira Sheikh. It is only the version of DVD which is the basis for making the addition in question, on which the enquiry officer gave his finding that there was no acceptable material to establish that the assessee had paid money to Ms. Zahira Sheikh. In these facts and circumstances, the addition of ₹ 18 lakhs, claimed to be paid by the assessee to Ms. Zahira Sheikh, as unexplained/undisclosed payment is not justified and same is directed to be deleted. - Decided in favour of assessee. Unexplained cash credit u/s 68 - Held that - In appeal before the CIT(A), the CIT(A) observed that six out of nine creditors, i.e., Shri Dipak Patel, Shri Sudeep Shrivastav, Shri Naresh Shrivastav, Shri Ramesh Shrivastav, Shri Jagdishbhai Patel and Shri Vivek Shrivastav have filed returns of income and also have PAN and have also filed the confirmation letters. In the case of Shri Anil Kale, it was claimed that he was doing electrical repair work and his income was below taxable limit; and that the loan was advanced out of his savings. In the case of Smt. Santaben Patel, there was a balance of more than ₹ 7 lakhs in her bank account before advancement of loan and she had also stated that the amount was out of savings of 7-8 years out of her agricultural income; however, according to CIT(A), no proof of any agricultural activity such as 7/12 records or sale receipts etc. could be produced to establish the credit worthiness. The CIT(A) also noted that Shri Jayendra Zala could not appear before the Assessing Officer and no details such as confirmation or his creditworthiness could be filed. The CIT(A) also held that the payment received by account payee cheque by itself does not fulfill the requirement of section 68 of the Act. In this background, the CIT(A) rightly held that the creditworthiness was not established in respect of loans of ₹ 3,19,500/- in respect of Mrs. Santaben Patel and Shri Jayendra Zala and accordingly confirmed this addition. These reasoned findings of the CIT(A) do not require any interference from our side; we uphold the same. - Decided against assessee.

Summary

Issues Involved:

1. Addition of ?18 lakhs as unexplained/undisclosed payment.
2. Addition of ?3,19,500/- as unexplained cash credit under Section 68 of the Income Tax Act.
3. Protective addition of ?18 lakhs under Section 69C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of ?18 lakhs as unexplained/undisclosed payment:

The primary issue raised by the assessee was the addition of ?18 lakhs made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] as an unexplained/undisclosed payment to Ms. Zahira Sheikh. The AO's basis for this addition stemmed from a directive by the Hon'ble Supreme Court in the case of Ms. Zahira H. Sheikh and others vs. State of Gujarat & Others, which instructed the Income Tax Department to investigate financial transactions involving the assessee. The AO, after reviewing a VCD from Tehelka.com, issued summons and recorded the assessee's statement, wherein the assessee denied making any payment to Ms. Zahira Sheikh. Despite this, the AO added ?18 lakhs to the assessee's income, citing the VCD as evidence.

Upon appeal, the CIT(A) upheld the AO's decision, noting that the VCD had not been proven to be fabricated and that Ms. Zahira Sheikh had changed her stand in a related criminal case. However, the Tribunal found that there was no tangible material or evidence to support the addition. The Hon'ble Supreme Court had also noted that there was no acceptable material linking the payment to the assessee. Consequently, the Tribunal directed the deletion of the ?18 lakhs addition, as it was based solely on the VCD without any corroborative evidence.

2. Addition of ?3,19,500/- as unexplained cash credit under Section 68 of the Income Tax Act:

The second issue pertained to the addition of ?3,19,500/- as unexplained cash credit under Section 68 of the Income Tax Act. The AO had initially added ?4,50,000/- due to doubts about the creditworthiness of nine creditors. On appeal, the CIT(A) accepted the creditworthiness of six creditors who had filed returns and provided confirmation letters. However, for two creditors, Mrs. Santaben Patel and Shri Jayendra Zala, the CIT(A) found insufficient evidence to prove their creditworthiness. Mrs. Santaben Patel's claim of agricultural income was unsubstantiated, and Shri Jayendra Zala did not appear before the AO or provide necessary details. Thus, the CIT(A) confirmed the addition of ?3,19,500/-.

The Tribunal upheld the CIT(A)'s findings, agreeing that the creditworthiness of the two creditors was not established and, therefore, the addition was justified.

3. Protective addition of ?18 lakhs under Section 69C of the Income Tax Act:

The third issue involved a protective addition of ?18 lakhs under Section 69C of the Income Tax Act, made by the AO and confirmed by the CIT(A) in the case of another assessee. The CIT(A) noted that the Hon'ble Supreme Court had found no acceptable material to show that the payment was made by the assessee. The AO had not provided sufficient evidence or material to substantiate the addition and had also not afforded the assessee adequate opportunity to rebut the evidence. The Tribunal, referencing its decision in the related case, held that no payment was made and, therefore, the protective assessment did not survive. Consequently, the appeal on this issue was allowed.

Conclusion:

The Tribunal partly allowed the appeal in ITA No.499/Ahd/2010 by deleting the addition of ?18 lakhs but upheld the addition of ?3,19,500/-. The appeal in ITA No.1233/Ahd/2009 was allowed, nullifying the protective addition of ?18 lakhs. The judgment emphasized the necessity of tangible evidence for additions under the Income Tax Act and the importance of providing assessees with a fair opportunity to rebut allegations.