2016 (1) TMI 411 - AT - Income Tax

Addition as agricultural income - Held that - No doubt, there cannot be a surmise that it was not probable for an assessee to retain cash withdrawn from bank account, without utilizing the same. However, here the explanation for the same was not withdrawal from the bank, but earnings from agricultural income. It is difficult to believe that a person who was having a bank account would have kept as much as 18 lakhs in cash in her / his house without banking. In such circumstances, we are of the opinion that AO was justified in considering ₹ 5 lakhs as saving from agricultural income that could have been kept by the assessee. In our opinion, lower authorities were justified in making an addition of ₹ 13 lakh - Decided against assessee Addition on withdrawal from a cash credit account with bank - Held that - No man with reasonable prudence would have taken an interest bearing loan and kept it with him / her as cash without utilising for a period of one year. Therefore, preponderance of probability is that the amount of ₹ 2.98 lakhs withdrawn by the assessee in August and September 2005 would have been used by her for some other purposes. This cannot be considered as a surmise, for a simple reason that assessee had to pay interest on the cash credit account. In such a situation, we are of the opinion that lower authorities were justified in not accepting the withdrawal from the cash credit account, more than one year back, as a source for investment in the property. Case of Meena Nagaraj Naik (supra) of coordinate bench would not come to the aid of assessee since the drawings were from the cash credit account and not a savings account. Accordingly we are of the opinion that lower authorities were justified in making an addition - Decided against assessee Undisclosed loan - Held that - claim of creditors that they did not have any bank account, since the village they lived viz., Huilgol / Kelur had no bank account cannot be accepted, when there were banks available within a reasonable periphery. It is against the principle of preponderance of probability that huge sums of money would have been kept in cash by them, over a number of years and loaned to the assessee in one go. Assessee might have been able to prove the credit worthiness of the parties and identity of the creditors. However in our opinion genuineness of the transaction has not been proved by the assessee. In such a situation, we are of the opinion that lower authorities were justified in disbelieving the version of loan of ₹ 8 lakhs from Veeranna Sajjanar. Coming to the loan of ₹ 5 lakhs alleged to have been taken from Shivanna, the said transaction was also claimed to be in cash. No doubt here also, the village accountant had certified the holding of the concerned Shivanna to be about 30 acres. As mentioned by us, Shivanna was also a resident of Huilgol village. To believe that he had saved and kept a sum of ₹ 5 lakhs in cash at his residence over various years and loaned it in cash to the assessee is difficult to believe. It is not a surmise but against the principle of preponderance of probability . Just because the creditor had produced evidence in the nature of agricultural holding or income of ₹ 4.5 lakhs per year would not be sufficient to come to a conclusion that they had funds with them to give a loan to the assesee in cash. Here also, in our opinion, genuineness of the loan has not been proved by the assessee. Coming to the loan of ₹ 5 lakhs claimed to have been taken from Allasab, we find that the contentions were very similar to that of the loan claimed to have been taken from Shivappa. Transactions were claimed to have been in cash. There is no evidence for sale of agricultural produce. Money claimed to have been accumulated was never banked. Claim that there was no banking facility in Huilgol was only a camouflage since admittedly there was a bank facility in Gadag which was only ten kms away. In this case also assessee has not been able to establish the genuineness of loan. Coming to the loan of ₹ 5 lakhs taken from Devappa, situation is almost the very same. Claim is that loan was taken in cash and the creditor had saved the money out of agricultural income over various years. In our opinion, genuineness of the transaction has not been proved here also. However, addition of ₹ 7 lakhs loan being loan received from Kanakadasa Shikshana Samithi is not warranted and such addition is deleted. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 13 lakhs disbelieving the claim of Rs. 18 lakhs as agricultural income.
2. Addition of Rs. 2,98,000 claimed to have been withdrawn from a cash credit account.
3. Disbelief in loans from various creditors amounting to Rs. 33 lakhs.

Detailed Analysis:

1. Addition of Rs. 13 Lakhs Disbelieving the Claim of Rs. 18 Lakhs as Agricultural Income
The assessee claimed an agricultural income of Rs. 18 lakhs, but the AO accepted only Rs. 5 lakhs as reasonable savings, treating the remaining Rs. 13 lakhs as unexplained investment. The AO's skepticism was based on the belief that substantial savings would have been banked rather than kept in cash. Despite the assessee and her family holding 52 acres of land and having a certificate from the Village Accountant, the AO found it improbable that such a large amount would be kept in cash. The CIT (A) affirmed this view. The Tribunal upheld the AO's decision, noting that it was difficult to believe that a person with a bank account would keep Rs. 18 lakhs in cash at home. Thus, the addition of Rs. 13 lakhs was justified.

2. Addition of Rs. 2,98,000 Claimed to Have Been Withdrawn from a Cash Credit Account
The assessee withdrew Rs. 2,98,000 from a cash credit account in August and September 2005, claiming it as a source for the property purchase in December 2006. The AO and CIT (A) did not accept this due to the time gap of over a year. The Tribunal agreed, stating that it was improbable for someone to take an interest-bearing loan and keep it as cash for over a year. The addition of Rs. 2.98 lakhs was thus upheld.

3. Disbelief in Loans from Various Creditors Amounting to Rs. 33 Lakhs
The loans from multiple creditors were scrutinized:

- Kanakadasa Shikshana Samithi (Rs. 7 lakhs): The AO disbelieved this loan due to a time gap and the indirect borrowing through the assessee's husband. However, the Tribunal found the gap of 4-5 months reasonable and noted that the loan was confirmed by the President of the Samithi. Thus, the addition of Rs. 7 lakhs was deleted.

- Veeranna S. Sajjanar and Smt. Girijadari V. Sajjanar (Rs. 8 lakhs): Despite the creditors having substantial agricultural holdings, the AO doubted their ability to save and lend Rs. 8 lakhs, especially without banking the money. The Tribunal upheld this view, noting the improbability of keeping such large sums in cash.

- Shivappa H. Neeralgi (Rs. 5 lakhs): Similar to the previous case, the AO and Tribunal found it improbable that the creditor saved and kept Rs. 5 lakhs in cash without banking it, despite having substantial agricultural income.

- Allasab H. Kadad (Rs. 5 lakhs): The Tribunal upheld the AO's disbelief, noting the improbability of accumulating and keeping such a large amount in cash without banking it.

- Devappa G. Kadi (Rs. 5 lakhs): The Tribunal found the situation similar to the other cases and upheld the addition, doubting the genuineness of the transaction.

The Tribunal emphasized that while the identity and creditworthiness of the creditors were established, the genuineness of the transactions was not. The absence of banking facilities within a reasonable vicinity was not a sufficient explanation for keeping large sums in cash.

Conclusion
The appeal was partly allowed. The Tribunal upheld the additions of Rs. 13 lakhs, Rs. 2.98 lakhs, and loans amounting to Rs. 23 lakhs from various creditors, except for the Rs. 7 lakhs loan from Kanakadasa Shikshana Samithi, which was deleted. The decision was pronounced in the open court on 18th November 2015.