2022 (12) TMI 530 - AT - Income Tax

Addition u/s 68 - Unexplained cash deposits - HELD THAT - AO during the Remand proceedings has taken much pain in verifying the genuineness of the loans by the various creditors by issuing them summons and notices u/s. 133(6) - AO disbelieved the loan amount given by assessee s wife who is said to be engaged in the sale of homemade namkeen dairy items and garment job work. As further claimed that the cash deposits made in the bank account is the joint account with the assessee s wife only. Similarly in the case of loan received from assessee s father in turn assessee s father borrowed loans from his five friends who are also engaged in agricultural activities. Similarly the other creditors wherein loan received by the assessee are less than Rs. 20,000/- each. The assessee s contention that the loan has been repaid as he could not buy the residential property due to some unavoidable reasons is found to be genuine and reasonable cause. A.O. has not made any verification of the repayment of loan. In our considered view, the A.O. has made huge verification on small time assessees, many of them are seen to be agriculturists in a small village. Assessee has filed confirmation from all the parties. Assessee also produced land ledger account of the various creditors to prove that they are engaged in agricultural activities. In the above circumstances, we do not find that the addition made by the AO is correct in law. For the above reasons, the addition confirmed by the Ld. CIT(A) are hereby deleted. Appeal filed by the Assessee is allowed.

Summary

Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act.
2. Addition of cash deposits as unexplained income under section 68 of the Act.
3. Creditworthiness and genuineness of unsecured loans claimed by the assessee.
4. Partial acceptance and rejection of loan confirmations by the CIT(A).

Detailed Analysis:

1. Reopening of Assessment Under Section 147:
The assessment was reopened by issuing a notice u/s. 148 of the Income Tax Act on 27.03.2017 due to the assessee's failure to file a return of income and the detection of cash deposits amounting to Rs. 14,50,500/- in the assessee's bank account. The notice was served by affixture due to no response from the assessee.

2. Addition of Cash Deposits as Unexplained Income:
The Assessing Officer (A.O.) added the cash deposits of Rs. 14,50,500/- as unexplained income under section 68 of the Act, along with an additional Rs. 4,840/- as interest from the savings bank account, resulting in a total income determination of Rs. 14,55,340/-.

3. Creditworthiness and Genuineness of Unsecured Loans:
During the appellate proceedings before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee provided details and confirmations of unsecured loans from 27 individuals, primarily agriculturists, claiming the loans were genuine and intended for purchasing a residential property. However, the CIT(A) only accepted Rs. 7,74,000/- as explained and treated Rs. 6,75,500/- as unexplained due to insufficient evidence of creditworthiness and genuineness.

Specific Cases of Unexplained Loans:
- Assessee's Wife: Rs. 3,00,000/- was claimed from the assessee's wife, with Rs. 2,00,000/- treated as unexplained due to lack of substantial evidence of her business activities.
- Assessee's Father: Rs. 3,25,000/- claimed from the father, who borrowed from five agriculturists, was treated as unexplained due to doubts about the lenders' creditworthiness and lack of evidence of agricultural produce sales.
- Other Creditors: Various small amounts (ranging from Rs. 17,500/- to Rs. 20,000/-) from different individuals were treated as unexplained due to lack of evidence of their business activities and creditworthiness.

4. Partial Acceptance and Rejection by CIT(A):
The CIT(A) partially allowed the appeal by accepting some of the loan transactions but upheld the addition of Rs. 6,75,500/- as unexplained. The assessee further appealed against this decision.

Tribunal's Decision:
The Tribunal considered the evidence, including confirmation letters, identity proofs, and landholding details provided by the assessee. It noted that the A.O. had made extensive verification efforts but failed to verify the repayment of loans. The Tribunal found the assessee's explanation of repaying the loans due to the non-materialization of the property purchase to be genuine and reasonable. Consequently, the Tribunal deleted the addition of Rs. 6,75,500/- confirmed by the CIT(A).

Conclusion:
The Tribunal allowed the appeal filed by the assessee, concluding that the addition made by the A.O. was not correct in law and the evidence provided sufficiently explained the sources of the cash deposits.

Order Pronouncement:
The order was pronounced in the open court on 19-10-2022.