2018 (4) TMI 642 - AT - Income Tax

Unexplained cash credit under section 68 - Held that - Creditworthiness of the concerned creditors and the genuineness of the relevant transactions having been not proved by the person who responded to summons under section 131, the addition made by the A.O. u/s 68 on account of unexplained cash credit was fully justified. As regards the contention raised by the learned counsel for the assessee seeking one more opportunity to the assessee to establish the financial capacity of the creditors, find that the assessee has already been given sufficient opportunity in this regard and there is no evidence filed by the assessee even at this stage before the Tribunal to establish the financial capacity of the concerned creditors. It is thus not a fit case where another opportunity can justifiably be given to the assessee. Therefore, set aside the impugned order of the Ld. CIT(A) on this issue and restore that of the A.O. for making the addition under section 68. Ground No. 1 of the revenue s appeal is accordingly allowed. Unexplained investment - Held that - Investment made by the assessee in purchase of land excluding ancillary expenses like stamp duty, registration fees etc. was duly reflected in his balance sheet. A.O. however treated the said investment as unexplained because the relevant entry in the books of accounts was made by the assessee only on 31.03.2012 while the investment was actually made on 22.11.2011. As contended on behalf of the assessee before the CIT(A) in this regard, he was not required to maintain books of accounts and therefore, the conclusion drawn by the A.O. regarding unexplained investment merely on the basis of different dates appearing in the books of account was not justified especially when the said investment was duly reflected in the balance sheet of the assessee. Keeping in view this explanation of the assessee, Ld. CIT(A) deleted the addition made by the A.O. on account of alleged unexplained investment made by the assessee

Summary

Issues Involved:
1. Deletion of addition on account of unexplained cash credit under section 68.
2. Deletion of addition on account of unexplained investment.

Issue 1: Deletion of Addition on Account of Unexplained Cash Credit under Section 68

The revenue challenged the deletion of ?40,26,000/- added by the Assessing Officer (A.O.) as unexplained cash credit under section 68. The A.O. noticed cash deposits of ?40,26,000/- in the assessee's bank account and required an explanation for the source. The assessee claimed the cash was received from friends and relatives for investments in commodity exchange and provided a list of sixteen persons. Six of these persons were summoned and confirmed the transactions, but the A.O. found they were not assessed to tax and lacked financial capacity. Consequently, the A.O. added the entire amount to the assessee's income as unexplained cash credit.

The assessee appealed, and the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, reasoning that the identity of the creditors was established, and they owned up the transactions. The CIT(A) cited various judgments, including Aravali Trading Co. vs ITO, to support the view that once the identity of the creditors is proved, the onus is discharged.

The revenue argued that the financial capacity of the creditors was not established, and the CIT(A) overlooked this aspect. The revenue cited the case of Mihir Kanti Hazra, emphasizing the need to prove the creditworthiness of creditors. The assessee's counsel argued that the assessment was completed in haste, and only six creditors were summoned. The counsel suggested remanding the matter to the A.O. for further verification if necessary.

The tribunal found that the financial capacity of the creditors was not established, as they were not assessed to tax and lacked regular income or bank accounts. The tribunal held that the CIT(A)'s view was contrary to the settled law, which requires proving the creditworthiness of creditors. The tribunal restored the A.O.'s addition under section 68, allowing the revenue's appeal on this ground.

Issue 2: Deletion of Addition on Account of Unexplained Investment

The revenue challenged the deletion of ?3,63,300/- added by the A.O. as unexplained investment. The A.O. noted that the assessee made an investment in land on 22.11.2011 but showed it in the cash book on 31.03.2012 for ?3,15,500/-. The A.O. added ?3,63,300/- as unexplained investment due to the discrepancy in dates and amounts.

The assessee appealed, and the CIT(A) deleted the addition, reasoning that the investment was reflected in the balance sheet and the discrepancy in dates was not significant. The CIT(A) noted that the assessee was not required to maintain books of accounts under section 44AB and had produced necessary documents.

The tribunal agreed with the CIT(A), finding that the investment was duly reflected in the balance sheet and the A.O.'s conclusion was unjustified. The tribunal dismissed the revenue's appeal on this ground.

Conclusion:

The appeal of the revenue is partly allowed. The tribunal restored the A.O.'s addition under section 68 for unexplained cash credit but upheld the CIT(A)'s deletion of the addition for unexplained investment. The order was pronounced in the open court on 11th April 2018.