2020 (4) TMI 710 - AT - Income Tax

Addition on account of undisclosed income - Addition u/s 68 - addition made holding that the assessee firm cannot return the loan to a dead person and a dead person cannot give loan to the partners - HELD THAT - Since Smt. Kanta Hurkat was died earlier and the repayment was made to her legal heir Shri Manak Chand Hurkat through bank account operated jointly by late Kanta Hurkat and Shri Manak Chand Hurkat and as such it was operated by Shri Manak Chand Hurkat after death of Smt. Kanta Hurkat. CIT(A) should have accepted this clarification but he did not appreciate the same and just confirmed the order of the A.O. Found that as the case was time barring and the assessee could not obtain confirmation of such transactions from the legal heir of Late Kanta Hurkat, the case was finalised by the A.O. on 22/03/2016 U/s 143(3). As the confirmation has been obtained later on and essential evidence to decide the case, the same was filed before the ld. CIT(A) but he declined to entertain the same without any cogent reason. Find no merit in the action of the ld. CIT(A) for accepting the clarification regarding chain of documents which the assessee could not file before the A.O. As gone through all the chain of transactions which were through account payee cheques. All the bank statements are on record. The bank account of Late Kanta Hurkat was operated jointly by the husband of Late Kanta Hurkat and by Late Kanta Hurkat. Shri Manak Chand Hurkat continued to operate the bank account even after death of his wife. Merely because, husband of Late Kanta Hurkat did not inform the death of her wife to the bankers, the entire transaction of return of loan by assessee firm to Kanta Hurkat and issue of cheque by husband of Kanta Hurkat who was joint signatory in the bank account cannot be held to be non-genuine. Accordingly, find no merit in the action of the A.O. for making addition U/s 68 - Decided in favour of assessee.

Summary

Issues:
Appeal against addition of undisclosed income of ?25.00 lacs. Additional ground raised for consideration of new evidence. Validity of transactions with deceased person. Application of Sec. 68 for capital introduced by partners. Rejection of clarification letter by CIT(A) due to time-barring issue. Justification of transactions through account payee cheques.

Analysis:
The appeal pertains to the addition of ?25.00 lacs as undisclosed income by the Assessing Officer (AO) under Sec. 143(3) of the Income Tax Act, 1961. The assessee raised an additional ground for considering new evidence, which was accepted for adjudication by the tribunal based on the decision in the case of NTPC. The facts reveal that the transactions involved a deceased person, Smt. Kanta Hurkat, who had given loans to the partners of the firm. The AO added the sum on the premise that a firm cannot return a loan to a deceased person, and a deceased person cannot provide loans to partners. However, the tribunal found that all transactions were conducted through account payee cheques, with bank statements and evidence of joint bank accounts provided, leading to the conclusion that the transactions were genuine and did not attract Sec. 69, 69A, 69B, or 69C.

Regarding the capital introduced by the partners, it was confirmed through account payee cheques with explanations for the sources provided, leading the tribunal to hold that Sec. 68 could not be invoked. The CIT(A) had rejected a clarification letter from Manak Chand Hurkat, the legal heir of Smt. Kanta Hurkat, due to a time-barring issue. However, the tribunal found that the clarification should have been accepted as it provided essential evidence, and the failure to submit it earlier was due to the time constraints. The tribunal emphasized the genuineness of the transactions conducted through account payee cheques, even though the bank account was jointly operated by the deceased person and her husband.

In conclusion, the tribunal relied on various judicial pronouncements and precedents to rule in favor of the assessee, deleting the addition made by the AO and confirmed by the CIT(A). The tribunal found no merit in the AO's application of Sec. 68 and upheld the genuineness of the transactions based on the evidence presented. The appeal of the assessee was allowed, and the judgment was pronounced on 18th February 2020.