2016 (6) TMI 732 - AT - Income Tax

Addition on account of unexplained gift - amount received from the mother - Held that - The mother of the assessee was not having any independent source of income and she was fully dependent for her maintenance on her four sons including the assessee. The said lady thus has no capacity to give the gift to the assessee and in the absence of any satisfactory explanation offered by her about immediate source from which the amount in question was claimed to be given to the assessee in cash, find myself in agreement with the authorities below that the amount of gift claimed to be received by the assessee from his mother is not satisfactorily explained by the assessee. Addition confirmed - Decided in favour of revenue Unexplained cash credits - addition u/s 68 - Held that - There is nothing brought on record by the assessee to establish that the amount in question actually represented the trade advances. By assessee s own submissions, the amounts in question represented loans and the primary onus, therefore was on the assessee to establish the identity and capacity of the concerned creditors as well as the genuineness of the relevant transaction. As rightly contended by the ld. DR in this regard, the assessee has however failed to discharge this onus. Keeping in view the adverse findings of the enquiry conducted by the AO, which the assessee has failed to explain. Thus the amount in question stated to be loans received by the assessee is rightly treated by the authorities below as unexplained cash credits which is liable to be added to the total income of the assessee under section 68. - Decided in favour of revenue Addition made on account of low withdrawals - Held that - The estimate of personal and household expenses of the assessee as made by the AO, after taking into consideration the family size of the assessee, cost of living etc., is quite fair and reasonable. Therefore find no justifiable reason to interfere with the impugned order of the ld. CIT(A) confirming the addition made by the AO on account of low withdrawals and confirming the addition made on this issue - Decided in favour of revenue Addition on account of unexplained investment - Held that - As rightly contended by the ld. Counsel for the assessee by relying on section 45 of the Transfer of Property Act, 1882, 50% of the investment in land, therefore is to be presumed as having made by the wife of the assessee and if there is a failure to explain satisfactorily the source of the said investment in the hands of the wife, the addition on account of such unexplained investment is liable to be made in her hands who is an independent individual separately assessed to tax and not in the hands of the assessee. Therefore delete the addition made by the AO and confirmed by the ld. CIT(A) on this issue - Decided in favour of assessee

Summary

Issues:
1. Disallowance of expenses under electricity, telephone, and car expenses.
2. Addition of gift received from mother under unexplained cash credit.
3. Addition of loans received treated as unexplained cash credits.
4. Addition of advance received from clients.
5. Addition of low drawings for personal and household expenses.
6. Addition of unexplained investment for land purchase.

Analysis:

The appeal filed by the assessee challenges the order by the Commissioner of Income-Tax (Appeals) for the assessment year 2004-05. The assessee, a legal practitioner, disclosed income of ?1,51,780, which was later determined at ?7,91,292 by the Assessing Officer (AO) after various additions. The appeal raised multiple grounds, including disallowance of expenses and additions made by the AO. The Tribunal dismissed grounds not pressed by the assessee and proceeded to analyze the remaining issues.

Regarding the addition of ?40,000 as an unexplained gift from the mother, the AO treated it as unexplained due to lack of evidence of the mother's capacity to give such a gift. The Tribunal upheld this decision as the mother had no independent income and was dependent on her sons, including the assessee. The Tribunal found the gift unexplained and confirmed the addition.

On the issue of loans received by the assessee totaling ?1,88,000 from 11 creditors, the AO treated loans from nine creditors as unexplained cash credits under section 68. The Tribunal upheld this decision as the assessee failed to establish the identity and capacity of the creditors or the genuineness of the transactions, leading to the confirmation of the addition.

The Tribunal also addressed the addition of ?49,800 for low withdrawals for personal and household expenses. The AO estimated expenses at ?85,800 based on family size and living costs, adding the difference to the income. The Tribunal found the estimate reasonable and dismissed the appeal as the assessee failed to provide evidence supporting the claim that expenses were partly met by the wife's earnings.

Regarding the addition of ?3,03,433 for unexplained land investment, the AO added the amount as unexplained investment beyond the declared 50% share. The Tribunal disagreed, noting that the investment was joint with the wife, and under the Transfer of Property Act, 50% was presumed to be the wife's investment. As the wife was a separate taxpayer, the Tribunal deleted the addition, allowing the appeal partially.

In conclusion, the Tribunal partly allowed the appeal, addressing each issue raised by the assessee and providing detailed reasoning for the decisions made on each ground.