2018 (11) TMI 583 - AT - Income Tax

Addition u/s 68 - genuineness gift transaction - Held that - The assessee has claimed the opening capital of ₹ 6,31,450 as a gift from his father. In absence of gift deed or confirmation, the AO found it reasonable to restrict to restrict the opening capital to ₹ 2,00,000 and added an amount of ₹ 4,31,450. Firstly, we find it difficult to understand if the AO has doubted the gift transaction, what made him to restrict the addition to ₹ 4.31 lacs. Either the transaction has to be accepted or rejected in totality. To our mind, this arbitrariness in the approach of the AO is a good ground for us to delete the subject addition. Further, during the appellate proceedings, the assessee submitted the affidavit of the father of having given the gift to the assessee and also other supporting documentation in support of creditworthiness which we have noted above. In peculiar facts of the case, where the assessee has started a new business, it would be reasonable to believe the contention of the assessee of having received the initial finance from his father by way of a gift. Therefore, the genuineness of the transaction and also the creditworthiness of the father has been established which has been supported by land records/earnings. The addition so made by the AO is hereby deleted and the ground is allowed.

Issues Involved:
1. Treatment of cash deposits as undisclosed income.
2. Treatment of the opening balance of the capital account as undisclosed income.
3. Estimation of net profit rate.

Issue-wise Detailed Analysis:

1. Treatment of Cash Deposits as Undisclosed Income:

The assessee contested the addition of ?10,33,563/- as undisclosed income, arguing that the cash deposits were part of the business transactions from liquor sales. The assessee highlighted that the turnover from the liquor business was ?1,09,33,148/-, and cash deposits of ?19,22,790/- were made, which constituted 17.59% of the total turnover. The assessee claimed that the deposits were used for purchasing liquor from government agencies and included money from the assessee's father, a farmer without a bank account.

The appellate authority noted that the assessee did not initially disclose the bank account and failed to link the cash sales with the deposits through verifiable evidence. The cash book did not reflect these deposits, leading to the conclusion that the bank account was used to deposit unrecorded receipts. The appellate authority upheld the lower authorities' decision, emphasizing the assessee's failure to demonstrate the source of the cash deposits satisfactorily. The addition of ?10,33,563/- as undisclosed income was confirmed.

2. Treatment of the Opening Balance of the Capital Account as Undisclosed Income:

The assessee claimed that the opening balance of ?6,31,450/- was a gift from his father, supported by documents such as the Jamabandi Report, Khasra Girdawari Report, photographs of agricultural land, an affidavit from the father, and a certificate from the village Sarpanch. The lower authorities doubted the genuineness of the transaction due to the absence of a gift deed and bank statements.

The appellate authority found the AO's decision to restrict the addition to ?4,31,450/- arbitrary, as the transaction should be accepted or rejected in totality. The appellate authority accepted the assessee's contention of receiving initial finance from his father for starting a new business, supported by land records and earnings. The addition of ?4,31,450/- was deleted, and the ground was allowed.

3. Estimation of Net Profit Rate:

The assessee contested the AO's estimation of net profit at 8% against the declared net profit rate of 2.30%, resulting in a trading addition of ?6,23,202/-. However, this ground was not pressed during the hearing and was dismissed as not pressed.

Conclusion:

The appeal filed by the assessee was partly allowed, with the addition of ?10,33,563/- as undisclosed income confirmed, the addition of ?4,31,450/- deleted, and the ground regarding the net profit rate dismissed as not pressed. The judgment was pronounced in the open court on 01/10/2018.

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