2017 (11) TMI 570 - HC - Income Tax

Undisclosed deposits - addition of unexplained income in the hands of the assessee - Held that - Only reliance of one bank account which has been opened by the assessee company and various authority letters given to Mr. Mayur M. Thakkar cannot be the basis to draw an inference that whole of the income accrue and arise in the hands of the assessee company. This matter should further have been seen and considered in the context of probabilities and possibilities of having earned any income by the assessee company from these transactions, being based at Jaipur and carrying out such transactions in Bombay wherein no such blank authorities given to Mr. Mayur M. Thakkar was required in case he could have been carrying out these transactions regularly in Bombay. Thus the assessing authority has wrongly assessed and ld. CIT(A) has wrongly upheld the deposits as additions being unexplained income in the hands of the assessee. Also in case it is considered that all these transactions have been carried out by the assessee company and deposits and making out of drafts and carrying out all these business is a part of the work carried out by the assessee company and these deposits are considered as cash deposits in the bank account then there cannot be any assessment more than the amount of peak credit for both the years being a block period which does not exceed more than 10 lakhs. In no case there can be 100% assessment on the total deposits as an income and cannot be considered as undisclosed income of the block period - Decided in favour of assessee.

Summary

Issues:
- Common questions of law and facts in both appeals

Analysis:
In this judgment by the Rajasthan High Court, the court addressed common issues in two appeals challenging the Tribunal's decision. The substantial questions of law framed by the court pertained to the addition of undisclosed income in bank accounts and unexplained transactions found during a search. The court examined whether the Tribunal was justified in deleting substantial amounts added by the Assessing Officer. The court noted discrepancies in the transactions, including deposits not disclosed in the books of accounts and unexplained documents indicating transactions with certain entities. The court emphasized the importance of evidence and explanations provided by the assessee regarding ownership and operations of the bank accounts in question.

The court considered arguments presented by both parties, focusing on the details of the bank account, including the account holders, signatories, and transactions. The appellant's counsel highlighted specific grounds related to the company's involvement in the bank account and the lack of disclosure in the regular books of accounts. The court analyzed the contentions made by the parties, especially regarding the ownership and operation of the bank account, withdrawals made, and explanations provided by the assessee. The court reviewed the Assessing Officer's observations and the Tribunal's findings to determine the legitimacy of the additions made to the income.

Furthermore, the court delved into the details of the transactions, referencing specific paragraphs from the Assessing Officer's order and the Tribunal's observations. The court scrutinized the nature of the transactions, the involvement of other parties, and the role of the assessee in the alleged activities. The court highlighted discrepancies in the Assessing Officer's conclusions and the lack of conclusive evidence linking the assessee to the transactions in question. Ultimately, the court upheld the Tribunal's decision, ruling in favor of the assessee and dismissing the appeals. The court suggested that appropriate action be taken by the department against the party implicated in the order, indicating the seriousness of the discrepancies found during the proceedings.