1977 (12) TMI 47 - AT - Income Tax

Summary

Issues: Re-assessment based on undisclosed income; Validity of re-assessment initiation; Burden of proof on genuineness of cash credits.

In this case, the appeal was against a re-assessment adding Rs. 70,000 as income from undisclosed sources to a registered firm's total income. The Income Tax Officer (ITO) reopened the assessment under section 147, suspecting four cash credits totaling Rs. 70,000 to be undisclosed income. The assessee challenged the notice in the High Court, but it was upheld. The ITO proceeded with re-assessment as the creditors failed to prove the genuineness of the cash credits, resulting in a total income of Rs. 94,340. The Appellate Authority confirmed the re-assessment due to lack of evidence on the creditors' financial capacity.

Regarding the validity of re-assessment initiation, the assessee contended that the Supreme Court's judgment in a similar case invalidated the link between the material and the satisfaction for reopening. However, the Tribunal held that the issue was settled by the High Court's decision, precluding the assessee from challenging it further.

On the merits, the assessee argued that sufficient evidence, including confirmation letters and income tax file numbers of the creditors, discharged the prima facie burden. The assessee identified the creditors and their transaction confirmation, supported by a Tribunal decision. The Department claimed the creditors were name lenders without funds to lend, demanding the creditors' presence. The Tribunal found the assessee's evidence satisfactory, as the creditors were identified, and the transaction was proven through documents. The Department's evidence only suggested the creditors were name lenders, with no direct contradiction to the genuineness of the loans. Therefore, the addition of Rs. 70,000 was deemed unjustified, and the re-assessment was canceled, restoring the original assessment and allowing interest paid on the loans. The ITO was directed to amend the partners' assessment accordingly.

In conclusion, the appeal was allowed in favor of the assessee, with the Tribunal ruling in favor of deleting the added amount and restoring the original assessment.