2016 (7) TMI 4 - AT - Income Tax

Addition u/s 69A - Held that - Once the assessee had offered an explanation fortified with documentary evidences and further corroborated by a third party, the onus reverted to the Revenue to prove that the facts were not correct. The Department was patently wrong in drawing an adverse inference based upon suspicion or perception of culpability and hence the addition cannot be sustained. The addition is accordingly deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ?8,50,000/- under Section 69A of the Income Tax Act, 1961 as unexplained cash.
2. Rejection of the explanation provided by the assessee regarding the source of the cash.
3. Examination of documentary evidence and statements provided by the Director of M/s Patliputra Credit & Securities Ltd.
4. Evaluation of the findings and decisions of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)].
5. Application of legal principles related to the burden of proof and the use of suspicion in tax assessments.

Detailed Analysis:

1. Addition of ?8,50,000/- under Section 69A of the Income Tax Act, 1961 as unexplained cash:
The appeal was directed against the order confirming the addition of ?8,50,000/- under Section 69A of the Income Tax Act, 1961. The cash was found in the assessee's locker during a search operation and was initially added back as unexplained cash by the Assessing Officer (AO).

2. Rejection of the explanation provided by the assessee regarding the source of the cash:
The assessee contended that the cash was received from M/s Patliputra Credit & Securities Ltd. (PCSL) as part of an advance for a proposed construction and sale of a flat. The AO, however, considered this transaction as an accommodation entry to explain unaccounted cash and made the addition under Section 69A. The AO's skepticism was based on several factors, including the lack of a formal agreement and the improbability of a public limited company dealing in such large amounts of cash without a bank account.

3. Examination of documentary evidence and statements provided by the Director of M/s Patliputra Credit & Securities Ltd.:
In the second round of assessment, the Director of PCSL, Mr. Anil Sanghi, appeared before the AO and provided documentary evidence, including the company's audited balance sheet and income tax returns, which showed the advance payment. Despite this, the AO maintained the addition, citing reasons such as the implausibility of PCSL not having a bank account and the improbability of the company keeping large amounts of cash on hand.

4. Evaluation of the findings and decisions of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)]:
The CIT(A) upheld the AO's addition on the grounds of suspicion and preponderance of probabilities, without providing specific reasons for rejecting the documentary evidence and statements. The CIT(A) relied on the AO's reasoning and did not address the substantial evidence provided by the assessee and PCSL.

5. Application of legal principles related to the burden of proof and the use of suspicion in tax assessments:
The Tribunal noted that the CIT(A) upheld the addition based on suspicion and that the AO did not provide concrete evidence to contradict the assessee's claims. The Tribunal emphasized that suspicion and doubt cannot replace relevant facts in assessments, especially under deeming provisions like Section 69A. It cited a recent judgment from the Punjab & Haryana High Court, which held that the initial onus lies on the revenue to raise a prima facie doubt with credible material, and if the assessee provides a credible explanation, the onus shifts back to the revenue to disprove it.

Conclusion:
The Tribunal concluded that the assessee had provided a credible explanation supported by documentary evidence and corroborated by a third party. The revenue failed to disprove these facts with tangible material, relying instead on suspicion and conjecture. Therefore, the addition of ?8,50,000/- was deleted, and the appeal of the assessee was allowed. The order was pronounced in the Open Court on 29th April 2016.