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2016 (9) TMI 797 - AT - Income TaxUnexplained credit - Held that - Admittedly the assessee has shown ₹ 1 lakh in the cash book as withdrawal from the Axis Bank however, on verification the Assessing Officer found that there is no such entry in the account. The assessee then explained that this was a mistake committed by the Accountant and the amount involved is loan taken from two persons namely (1) Yagati Naganna & (2) Nerlige Karinayak. The assessee has also explained that the said amount was repaid by the assessee on 21.7.2009 and 22.7.2009 respectively. The Assessing Officer did not choose to verify the facts explained by the assessee and disallowed the explanation at threshold. It is pertinent to note that when the assessee has explained that this loan amount in question has been paid to these creditors and also filed the confirmation of these two parties then in case the Assessing Officer was not satisfied or doubting the veracity of the confirmation as well as the claim then further enquiry / investigation could have been conducted by the Assessing Officer. Instead of conducting further enquiry, the Assessing Officer has out rightly rejected the explanation as well as confirmation produced by the assessee. Accordingly in view of the facts and circumstances of the case we find that this issue requires a proper verification and examination. If need arises the creditors may be examined by the Assessing Officer on being production by the assessee. Addition towards unexplained cash credit - Held that - The assessee claimed to have received an advance of ₹ 2,50,000 from various persons against the agricultural income. In support of the claim the assessee produced two agreements dt.2.4.2009 and 5.4.2009. However the stamp paper used for these agreements belong to the series of the stamp paper which were available only on 31.12.2010 onwards. Apart from these agreements the assessee has not produced any other supporting documents except confirmation letters from the creditors. It is manifest from the record that when the Assessing Officer questioned the genuineness of the claim the assessee attempted to manufacture the evidence in support of the claim by producing pre-dated agreements on subsequently purchased stamp papers. Therefore the evidence produced by the assessee is after thought and created only after the Assessing Officer has questioned the genuineness of the claim. In the absence of any contemporaneous supporting evidence we do not find any error or illegality in the orders of the authorities below for this issue. Addition on account of borrowed fund from villagers - Held that - The Assessing Officer had enough reason to doubt the genuineness of the transaction as it is apparent that the assessee shown loan of ₹ 19,000 each from 34 persons. This fact itself shows that it is all well thought out claim of the assessee to escape the relevant provisions of the Act. Further all loans are shown as interest free loans which is not acceptable except in case of a close relatives nobody will advance loan without interest. The burden of proving the onus is on the assessee to produce the creditors specifically when the facts and circumstances clearly raise the suspicion on the very genuineness of the claim. Accordingly, we find that the assessee has failed to discharge his onus to prove the genuineness of the claim. This ground of the assessee is dismissed. Penalty levied under Section 271(1)(c) on the basis of defective notice under Section 274 is not sustainable and accordingly the same is deleted.
Issues Involved:
1. Addition of ?1 lakh towards cash credit. 2. Addition of ?2.5 lakhs towards unexplained cash credit. 3. Addition of ?6,46,000 on account of borrowed funds from villagers. 4. Confirmation of interest under Sections 234A and 234B of the Income Tax Act. 5. Penalty under Section 271(1)(c) of the Income Tax Act. Detailed Analysis: 1. Addition of ?1 lakh towards cash credit: The assessee showed ?1 lakh in the cash book as a withdrawal from Axis Bank. Upon verification, the Assessing Officer (AO) found no such entry in the Axis Bank account. The assessee explained this as a typographical error by the Accountant, claiming the amount was actually a loan from two individuals. The AO rejected this explanation and added ?1 lakh as unexplained cash credit. The CIT (Appeals) upheld this addition. The Tribunal noted that the AO did not verify the explanation provided by the assessee, including the repayment details and confirmation letters from the creditors. The Tribunal remanded the matter back to the AO for proper verification and examination, including the possibility of examining the creditors. 2. Addition of ?2.5 lakhs towards unexplained cash credit: The assessee claimed to have received ?2.5 lakhs from various persons as per the cash book, supported by agreements dated 2.4.2009 and 5.4.2009. The AO found that the stamp papers for these agreements were issued only on 31.12.2010 onwards, suggesting the agreements were backdated. The AO rejected the explanation and added the amount as unexplained cash credit. The CIT (Appeals) upheld the addition. The Tribunal agreed with the AO, noting that the evidence produced by the assessee appeared to be manufactured and afterthought. The Tribunal found no error in the orders of the authorities below. 3. Addition of ?6,46,000 on account of borrowed funds from villagers: The assessee showed loans of ?19,000 each from 34 persons, totaling ?6,46,000. The AO found the confirmation letters to be stereotyped and written in the same handwriting, with vague addresses. The assessee failed to produce the lenders, citing their engagement in agricultural work. The AO added the amount as unexplained cash credit, and the CIT (Appeals) upheld this addition. The Tribunal found that the assessee failed to discharge the burden of proving the genuineness of the loans, noting the suspicious nature of identical loan amounts and interest-free loans from non-relatives. The Tribunal upheld the addition but allowed the assessee to offset this amount against the accepted agricultural income of ?3,20,995. 4. Confirmation of interest under Sections 234A and 234B of the Income Tax Act: The issue of interest under Sections 234A and 234B was not specifically adjudicated in the Tribunal's order, as it was likely consequential to the main issues of additions and penalties. 5. Penalty under Section 271(1)(c) of the Income Tax Act: The assessee challenged the penalty on the grounds of no concealment or furnishing of inaccurate particulars. Additionally, the assessee argued that the notice under Section 274 read with Section 271(1)(c) was defective as it did not specify the grounds for penalty. The Tribunal admitted this additional ground and found that the notice was indeed defective, following the jurisdictional High Court's decision in CIT Vs. Manjunatha Cotton & Ginning Factory. Consequently, the Tribunal deleted the penalty, finding it unsustainable due to the defective notice. Conclusion: The Tribunal partly allowed the assessee's appeal regarding the quantum of additions, remanding the ?1 lakh cash credit issue for further verification and offsetting the ?6,46,000 addition against the agricultural income. The penalty appeal was fully allowed, with the penalty under Section 271(1)(c) being deleted due to a defective notice.
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