2017 (5) TMI 14 - AT - Income Tax

Unexplained bank deposit - ingenuity of firm - Held that - The assessee is an individual and partner in M/s M.K. Enterprises and M/s Kailash Yadav & Company. The source of cash deposited in the bank account is out of the cash withdrawals from M/s Kailash Yadav & Company and the books of account of M/s Kailash Yadav & Company reflects such advancement in its books of account. The assessee produced cash books of M/s Kailash Yadav & Company alongwith capital account of partners and proof of filing of income tax return for A.Y. 2010-11. The assessee also submitted copy of the partnership deed of the firm and also a confirmation. Therefore, the assessee has substantially proved the source of cash deposited in the bank account. Further the Assessing Officer doubted that the partnership deed was not registered, is also cannot be made a basis for not treating the firm as a genuine. - Decided in favour of assessee

Summary

Issues:
Appeal against addition of unexplained bank deposit of ?18,82,000.

Analysis:
The appeal arose from an order by the ld. CIT(A) for the A.Y. 2010-11, concerning the addition of ?17,80,000 to the assessee's income due to an alleged unexplained bank deposit. The Assessing Officer and the ld. CIT(A) doubted the genuineness of the firm M/s Kailash Yadav & Company, suspecting it was created to explain cash entries. The assessee contended that the deposited amount came from the firm, supported by books of account, partnership deed, and confirmations. The AR cited legal precedents to argue that once the depositor is identified and confirms the advance, further inquiry into the source is unwarranted under Section 68 of the Income Tax Act, unless the depositor disowns the deposit. The AR relied on court decisions to support this argument.

The ld. DR supported the lower authorities' decisions, but the Tribunal found in favor of the assessee. The Tribunal noted that the source of the bank deposit was the cash withdrawals from M/s Kailash Yadav & Company, with supporting evidence provided by the assessee. The Tribunal emphasized that the burden on the assessee was to prove the existence of the creditor and the advance, not the source of the creditor's funds. Citing a High Court case, the Tribunal ruled that the rejection of the explanation based on the creditor's source of funds was erroneous. As the firm confirmed the advance and the source was established, the Tribunal directed the deletion of the addition.

In conclusion, the Tribunal allowed the appeal, emphasizing that the assessee had substantially proven the source of the bank deposit and that the rejection of the explanation based on the creditor's source of funds was incorrect. The Tribunal followed legal precedents and directed the deletion of the addition to the assessee's income.