2018 (9) TMI 965 - AT - Income Tax

Addition u/s. 68 - unexplained cash credit - investment out of his undisclosed source - employer used/mis-used the account of the assessee with his knowledge and signature - Held that - The assessee has been mis-utilized by his employer to route the cash through his bank account. In such a scenario, rather than finding out the real beneficiary in the whole modus operandi, the AO failed to collect any material or at least could not expose any falsity in the averments submitted by the assessee u/s. 131 of the Act. In such circumstances making huge addition in assessee s hand of the entire deposit of cash in his bank account which admittedly has got out of his bank account to some other beneficiary or layers through which the real beneficiary gets the ultimate benefit cannot be countenanced and not only that the department will not be able to recover the tax also from person of no means. Only if the real beneficiary is traced out the department will be able to recover the tax due to the State. So by making additions in wrong hands from whom tax cannot be recovered, help only the ultimate beneficiary and not even the department. Thus for the interest of justice and fair-play, we are inclined to delete the addition as ordered by the AO/Ld. CIT(A). The assessee s bank account since used for deposit and transfer of cash is an activity for which a commission of 0.1% needs to be computed as the income of the assessee and the income on which the assessee has to be assessed to tax. With the aforesaid direction, we partially allow the appeal of the assessee - Appeal of assessee is partly allowed.

Summary

Issues Involved:
Appeal against addition under section 68 of the Income-tax Act, 1961 for AY 2010-11.

Analysis:

1. Issue of Addition under Section 68:
The primary issue in this appeal is the addition of ?3,86,49,700 under section 68 of the Income-tax Act, 1961. The case was selected for scrutiny based on cash deposits in the assessee's bank account and investments made in the name of the proprietorship concern. The Assessing Officer (AO) invoked section 68 for unexplained cash credit, as the assessee initially denied knowledge but later admitted involvement. However, the Appellate Tribunal noted discrepancies in the AO's approach. The AO did not thoroughly investigate the modus operandi described by the assessee and his colleague. The Tribunal observed that the cash deposited was swiftly transferred to other accounts, indicating the assessee acted as a conduit rather than the ultimate beneficiary. The AO's failure to trace the real beneficiary and lack of field inquiry raised doubts on the assessment's fairness. The Tribunal found the addition based on surmises and conjectures, lacking concrete evidence to support the AO's allegations. Consequently, the Tribunal partially allowed the appeal, directing a commission of 0.1% to be computed as the assessee's income for the deposit and transfer activity.

2. Assessment of True Income:
The Tribunal criticized the AO for disregarding crucial facts, such as the assessee's low salary and the employer's influence in the bank transactions. The AO's failure to verify the employment details and the swift transfer of funds without substantial balance in the assessee's account raised doubts on the assessment's validity. The Tribunal emphasized the importance of a fair and just approach by the AO, highlighting the need for thorough investigation before attributing substantial income to an individual with limited means. The Tribunal's decision to delete the addition was based on the lack of concrete evidence linking the cash deposits to the assessee's undisclosed income, emphasizing the need for a more comprehensive inquiry to identify the actual beneficiary for tax recovery purposes.

3. Reasoning for Partial Allowance:
The Tribunal's decision to partially allow the appeal was based on the lack of conclusive evidence supporting the AO's addition under section 68. By considering the overall facts and circumstances, the Tribunal concluded that the cash deposits were not the assessee's undisclosed income but rather a mechanism used by the employer to route funds. The Tribunal highlighted the importance of identifying the real beneficiary for effective tax recovery, emphasizing that attributing the entire amount to the assessee would benefit the ultimate beneficiary rather than the tax department. Therefore, the Tribunal's decision aimed at ensuring fairness and justice by deleting the addition while directing a commission on the income generated from the deposit and transfer activity.

In conclusion, the Appellate Tribunal's judgment in this case highlights the importance of thorough investigation, fair assessment practices, and the need to identify the actual beneficiary in cases involving unexplained cash credits. The decision emphasizes the significance of concrete evidence and a comprehensive inquiry to ensure accurate tax assessments and effective tax recovery.