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2018 (2) TMI 2124 - AT - Income TaxUnexplained cash credits u/s 69 - unsecured loan from the assessee s mother and family members - HELD THAT - It is seen that as correctly contended, the impugned additions were made by the AO for the credits shown in the balance sheet, holding them to be unexplained cash credits . Sec. 69 is applicable to unexplained investment and not to cash credits . No investment is alleged by the AO to invoke Sec 69 - CIT(A)'s confirmation of addition u/s 69 of the Act is also incorrect. CIT(A) himself observes that unlike section 68, under section 69 there is no condition for any investment to be recorded in the books of accounts. Thus he accepts that while maintenance of books is not a condition precedent for invoking sec. 69, it is so for section 68. CIT(A) failed to appreciate that the additions made by the AO were for alleged unexplained cash credits and not for unexplained investment . Thus, CIT(A) was legally incorrect in confirming the additions u/s 69. The submissions of the assessee were forwarded by the CIT(A) to the AO for his comment. During the remand proceedings, the assessee again made detailed submissions before the AO. In the remand report, the AO did not bring out any new fact, nor commented anything specific against the assessee. Rather, on ground wise specific submissions, the AO's comments were that no new fact had been brought on record, the cases relied by the assessee were in his favour and it was for the ld. CIT(A) to decide the issues on the facts available on record. If the provisions invoked are held to be non applicable, the very charge for making the addition does not survive and it cannot be converted to that of another entirely different provision. Section 69 of the Act concerns cases where the assessee had made investments which are not recorded in the books of account, if any, maintained by him for any source of income and the assessee offers no explanation about the nature and source of the investments, or the explanation offered by him is not, in the opinion of the AO, satisfactory. In the present case, the assessee is not shown to have made any investment and, therefore, the provisions of section 69 of the Act are not attracted. Applicability of Section 68 and 69 - Now, once the addition is not sustainable under section 69, all questions raised by the AO or the ld. CIT(A) become otiose.The impugned addition, being alleged as unexplained cash credits , could only be made u/s 68 of the Act. Sec 68 stipulates that if any sum is found credited in the books of account maintained by the assessee and he offers no explanation, or his explanation is not found satisfactory, such sum could be deemed to be income of the assessee. In the present case, since the assessee's gross receipts were below Rs.40 lac, he has not been shown to maintain any books. CIT(A)'s observation that there is no proposition in law for non maintenance of accounts for cases falling u/s 44AD, is incorrect. The provisions of sub section 5 of Sec. 44AD read with those of Sec. 44AA (2)(iv) statutorily mandate the maintaining of books of account for the cases filling u/s 44AD only when the net profit is less than 8%. In other words, where the case is covered by Sec 44AD, i.e., where the turnover is below Rs. 40 lacs and the declared net profit is 8% or more, no books of account are required to be maintained. The fact of non maintenance of books of account by the assessee was also in the knowledge of the AO, obviously, as he did not at all call for the books of account either through the notice u/s 142(1), or through the order sheet. CIT(A)'s observation regarding probable maintenance of accounts, is nothing but a mere surmise and conjecture. Appearance of the Accountant or the Chartered Accountant before the AO does not establish that books were actually maintained by the assessee. As a matter of fact, no books of account are found to have been maintained by the assessee, which is a sine-qua-non for the addition of unexplained cash credit . No addition could be made on the basis of either of the estimated balance sheets, particularly when no books were maintained, without making further enquiries, and bringing on record any corroborative material. It is pertinent that the assessee's bank statement was before the AO, but no entries of the alleged amounts were pointed out by the AO. AO s allegation that the bank statement of mother Smt. Usha Malhotra for entry of 50,000/- on 12/04/2005 was not filed is also not correct. In the very bank statement, which was before the AO, there was this entry on 15/04/2005, posted by the bank on clearing of cheque. Further, along with the revised estimated balance sheet, the assessee also furnished confirmations from his father, mother and other lenders. If the AO wanted to verify the credits in the revised balance sheet, which were supported by confirmations, he could have easily exercised his powers either u/s 133 (6), or u/s 131. But he did not do so and simply made the additions on the basis of first estimated balance sheet, which, as observed, is unsustainable in law. Assessee appeal allowed.
Issues:
Assessment of unexplained cash credits under section 69 of the Income Tax Act for alleged deposits from family members, validity of additions based on estimated balance sheets, requirement of maintaining books of account under presumptive taxation scheme, applicability of section 68 and 69 for additions, adequacy of evidence for additions, legal interpretation of provisions regarding unexplained cash credits. Analysis: 1. Assessment of Unexplained Cash Credits under Section 69: The Assessing Officer (AO) made additions under section 69 of the Act for alleged unexplained cash credits from family members. The AO observed discrepancies in the revised balance sheet and made additions towards opening capital and unsecured loans. The CIT(A) confirmed the additions, suggesting that the assessee was likely maintaining books of account despite not producing them. However, the Tribunal noted that section 69 applies to unexplained investments, not cash credits. The Tribunal held that the CIT(A) erred in confirming the additions under section 69 as they were based on unexplained cash credits, not investments. 2. Validity of Additions Based on Estimated Balance Sheets: The AO made additions based on discrepancies in the estimated balance sheets filed by the assessee. The CIT(A) upheld some additions while deleting others. The Tribunal emphasized that no addition can be made solely on the basis of estimated balance sheets, especially when no books of account were maintained. The Tribunal highlighted the importance of corroborative material and further inquiries before making additions based on estimated figures. 3. Requirement of Maintaining Books of Account under Presumptive Taxation Scheme: The assessee was covered under the presumptive taxation scheme of section 44AD, where maintenance of books of account is not mandatory if certain conditions are met. The Tribunal clarified that under section 44AD, no books of account are required when turnover is below a specified limit and net profit is above a certain percentage. The Tribunal emphasized that the absence of books of account does not automatically justify additions under sections 68 or 69 of the Act. 4. Applicability of Section 68 and 69 for Additions: The Tribunal distinguished between sections 68 and 69 concerning unexplained cash credits and investments, respectively. It noted that the provisions of section 69 were incorrectly invoked by the AO and confirmed by the CIT(A) for unexplained cash credits. The Tribunal highlighted the specific conditions and requirements under each section for making additions, emphasizing the need for proper application of relevant provisions. 5. Adequacy of Evidence for Additions: The Tribunal criticized the lack of adequate evidence and corroborative material supporting the additions made by the AO. It highlighted the importance of thorough verification and proper documentation before concluding on unexplained cash credits. The Tribunal emphasized that mere discrepancies in balance sheets without further substantiation are insufficient grounds for making additions under the Act. 6. Legal Interpretation of Provisions Regarding Unexplained Cash Credits: The Tribunal provided a detailed legal analysis of the provisions under sections 68 and 69 of the Act concerning unexplained cash credits and investments. It clarified the specific conditions and requirements for invoking these sections and underscored the necessity of proper interpretation and application of the law in making assessments and additions. The Tribunal's decision focused on upholding the legal principles and ensuring compliance with statutory provisions. In conclusion, the Tribunal allowed the assessee's appeal, canceling the additions made by the AO under section 69 of the Income Tax Act. The judgment emphasized the importance of proper application of tax provisions, adequate evidence, and adherence to legal requirements in making assessments related to unexplained cash credits.
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