2020 (1) TMI 120 - AT - Income Tax

Bogus capital introduction - income from other sources u/s 69 - assessee has not filed any linkage/proof that withdrawal made last year remained and was utilized during the year for deposit in the capital account and thereby confirming the addition - whether the assessee has reasonably explained the source of capital introduction during the year or not? - HELD THAT - There is no dispute that the withdrawals have been made by the assessee in the preceding financial year as well as current financial year from her capital account. Even the AO has also not disputed that these withdrawals have been made by the assessee from her capital account. Regarding the availability of cash so withdrawn at the time of reintroduction of capital during the year, the AO has raised an apprehension that withdrawals might have been utilized for some other purposes and it cannot be retained by the assessee in anticipation of proposed capital introduction during the year under consideration. Assessee has submitted that being an old lady, she had kept the amount so withdrawn with her for emergency requirement, the same was not utilized elsewhere, was available with her at the beginning of the financial year and was used for reintroduction of capital and has also submitted an affidavit in support of her contentions. The finding of the authorities below is in the realm of suspicion and conjectures as the source of capital introduction has been reasonably explained by the assessee as out of her withdrawals from her capital account in the latter half of immediate past financial year which were available at the beginning of the financial year as well as from the current financial year withdrawals and the addition so made by the Assessing officer is hereby directed to be deleted. - Decided in favour of assessee.

Summary

Issues:
Capital introduction in business - Source of funds not proven

Analysis:
The appellant, engaged in trading, introduced capital of ?7,50,500 in the business during the year, sourced from withdrawals made in the previous financial year. The Assessing Officer (AO) added this amount as income from other sources under section 69 of the Act, as the withdrawals may have been utilized for other purposes. The appellant contended that the withdrawn amount was kept for emergency needs, available at the beginning of the financial year, and used for capital reintroduction. The appellant provided the capital account details of the previous year and an affidavit to support the claim. The AO's suspicion that the withdrawals were not retained for capital introduction was challenged. The appellant cited precedents to argue against the addition based on a time gap between withdrawals and deposits.

The Departmental Representative supported the lower authorities' findings, stating the appellant failed to prove the availability of withdrawn cash at the beginning of the financial year for capital reintroduction. The Tribunal analyzed the issue and found that the withdrawals were made by the appellant from the capital account in the preceding and current financial years. The AO's doubt regarding the availability of withdrawn cash for capital reintroduction was countered by the appellant's explanation of keeping the amount for emergencies, supported by evidence. The Tribunal held that the lower authorities' decision was based on suspicion and conjecture, as the appellant reasonably explained the source of capital introduction from the withdrawals. Consequently, the addition made by the AO was directed to be deleted, and the appellant's appeal was allowed.