2023 (9) TMI 590 - AT - Income Tax

Addition u/s 68, 69, 69A and 69C r.w.s. 115BBE - Proof of receipt of Cash Component against sale of property / loan agreement - DR said amount received under the banking channels was received in the accounts of the assessee leaving the cash component un-accounted for - HELD THAT - Though there was an attempt to enter into a particular transaction under this document, such a transaction was not taken to its logical conclusion - transaction of loan was abundant and another transaction of advancing the amounts towards sale consideration of the flat was taken up and the amounts paid through the banking channels were adjusted accordingly by making relevant entries in the books. Merely because Shri Uttam Kumar Reddy happens to be a partner of the assessee firm, it cannot readily be concluded that whatever he does even in individual capacity can be attributed to the assessee. Though the stamp paper was purchased on the name of the assessee, when there is no clinching evidence to show that the transaction under loan agreement was taken to its logical conclusion, it cannot be presumed that cash component was received by the assessee. In the event of the loan agreement, reaching its logical conclusion, even then, the assessee cannot be fastened with any liability, because as the document reads as it is, such transaction does not pertain to the assessee at all. It, therefore, appears that because the assessee appropriated Rs. 80 lakhs in its books of accounts, the transaction entered by the Shri Uttam Kumar Reddy is taken to have been continued. As rightly contended by the counsel for the assessee, it does not mean that the loan agreement continued into the purchase of flat. We do not know the basis for the AO to conclude that such cash component under the agreement of loan had become income of Shri Uttam Kumar Reddy during the financial year 2017-18. In such an event it destroys the case of the Revenue that the same amount had become the income of the assessee for the financial year 2016-17. AO does not determine in which year such cash was paid and if so, whether the entire receipt becomes income in that particular year etc. Addition was made not on any concrete finding basing on any corroborative evidence. We find it difficult to sustain the same. Addition is accordingly liable to be deleted. Appeal of assessee is allowed.

Summary

Issues involved:
The issues involved in the judgment include the treatment of a cash component in a loan agreement, the applicability of sections 68, 69, 69A, and 69C of the Income Tax Act, 1961, the role of a representative in financial transactions, and the validity of documents in determining tax liabilities.

Treatment of Cash Component:
The case involved an assessment of a firm's income for the assessment year 2017-18, where a loan agreement indicated a cash component of Rs. 20 lakhs. The Assessing Officer added this amount to the firm's income under various sections of the Income Tax Act. The firm contended that the loan agreement did not bind them as the cash component was not received, and only the amount received through banking channels was reflected in their books.

Role of Representative:
The Assessing Officer believed that the representative of the firm acted on its behalf in the financial transactions, evidenced by the adjustment of funds in the firm's books. The firm argued that the representative did not have authority to bind them, as the loan agreement was not signed by the borrower and did not mention the firm's name.

Validity of Documents and Tax Liabilities:
The firm contended that the loan agreement was not legally binding as it was not signed by all parties and did not mention the firm. The firm's counsel argued that even if the cash component was not recorded in the books, it should not be treated as income. The Tribunal found discrepancies in the Assessing Officer's treatment of the cash component and the firm's income, leading to the deletion of the addition.

Conclusion:
The Tribunal allowed the firm's appeal, stating that the addition of the cash component to the firm's income was not based on concrete evidence or findings. The Tribunal emphasized that the loan agreement did not conclusively establish the firm's liability for the cash component, leading to the deletion of the addition.