1985 (1) TMI 78 - AT - Income Tax

Summary

Issues:
1. Addition of unexplained credits to the income of the assessee for the assessment year 1977-78.
2. Appeal by the department against the deletion of Rs. 10,000 and setting aside of Rs. 8,000 by the AAC.
3. Cross-objection filed by the assessee in respect of the same.

Analysis:
1. The Income Tax Officer (ITO) added Rs. 18,000 to the income of the assessee on account of unexplained credits. The Appellate Assistant Commissioner (AAC) deleted Rs. 10,000 and referred the remaining Rs. 8,000 back to the ITO for further investigation. The department appealed, arguing that the AAC should have sustained the addition. The assessee filed a cross-objection related to the appeal. The cross-objection was limited to the department's appeal regarding the Rs. 18,000 addition.

2. The assessee maintained three sets of accounts, and credits of Rs. 18,000 and Rs. 10,000 were made in the capital account on specific dates. The ITO found the explanations provided unsatisfactory. The ITO considered the Rs. 18,000 as unexplained cash credit. On appeal, the AAC accepted the explanation for Rs. 10,000 but referred the Rs. 8,000 matter back to the ITO for further inquiry.

3. The departmental representative argued that the explanations provided by the assessee were afterthoughts, as the names mentioned were not reflected in the account books or balance sheets. The counsel for the assessee contended that the wealth-tax return was revised later to include the debt. The Tribunal found substance in the appeal, noting discrepancies in the explanations provided by the assessee and the lack of evidence to support the credits.

4. The Tribunal observed that while the creditor appeared to be creditworthy, the genuineness of the transaction was not established. The ITO's request for verification of the alleged advance by the creditor was deemed necessary. Since the names were not disclosed in the account books or balance sheets, the Tribunal upheld the ITO's decision to treat the Rs. 18,000 as unexplained cash credit.

5. The AAC's decision was set aside, and the ITO's decision was maintained. Consequently, the appeal by the department was allowed, and the cross-objection by the assessee was dismissed.