2018 (9) TMI 209 - AT - Income Tax

Addition towards undisclosed income relating to alleged deposits made in all the three years under consideration in a co-operative society - Held that - The manner of repayment of money, if any, has also not been examined. Since the deposits do not stand in the name of the assessee, effectively the assessee will not have control over the deposits. However, in respect of loan taken, the borrowers would be liable to repay the loans, since the society/bank can always initiate legal action against the borrowers for recovery of loans. A prudent man cannot be expected to enter into such kind of deals. The loans taken through accounting channels can be repaid only through accounting channels only. We have noticed that the loans taken by the relatives have been repaid by them. Neither Shri S.K. Tardale nor the Assessing Officer has brought on record any material to show that the loan amounts have been repaid out of the deposits alleged to have been received from the assessee. Hence the presumption drawn by the AO that the assessee has indulged in the practice of converting the black money into white may not be correct in the facts and circumstances of the case. Apart from the loan transactions, the AO has relied upon the statements given by Shri S.K. Terdale. We have noticed earlier that the statements given by him were not substantiated and hence not reliable. We have also noticed that the assessee cannot be expected to prove a negative fact. Accordingly we are of the view that the statements given by Shri S.K. Terdale cannot be taken support by the Assessing Officer. The assessee has not accepted the statements of Shri S.K. Terdale. D.R mentioned about the failure of the assessee to avail cross-examination. We agree with the contentions of the ld A.R that there was no requirement to make any cross examination, since the assessee was not required to prove any negative fact. Hence, for the detailed reasons, discussed in the preceding paragraphs, we are of the view that none of the evidences support the case of the Assessing Officer. Accordingly we set aside the orders passed by ld CIT(A) on this issue in all the three years under consideration and direct the AO to delete the impugned additions made in all the three years under consideration.

Issues Involved:
1. Addition towards undisclosed income relating to alleged deposits.
2. Validity of reopening of assessments.
3. Reliability of statements given by Shri S.K. Terdale.
4. Burden of proof and presumption under section 292C of the Income Tax Act.
5. Correlation between loans given to relatives of the assessee and alleged undisclosed deposits.

Issue-wise Detailed Analysis:

1. Addition towards undisclosed income relating to alleged deposits:
The assessee challenged the addition towards undisclosed income based on alleged deposits made in a co-operative society. The revenue had carried out survey operations and impounded a diary maintained by Shri S.K. Terdale, which recorded the receipt of deposits from certain persons, including the assessee. The assessee denied any connection with the deposits and refused to cross-examine Shri S.K. Terdale. The AO reopened the assessments and made additions based on the diary entries and statements from Shri S.K. Terdale. The Tribunal found that Shri S.K. Terdale's statements were unsubstantiated and unreliable, and the assessee could not be compelled to prove a negative fact. The Tribunal concluded that the additions were made on surmises and conjectures and directed the AO to delete the impugned additions.

2. Validity of reopening of assessments:
The assessee raised grounds regarding the validity of reopening the assessments. However, since the Tribunal decided the grounds on merits in favor of the assessee and the learned AR did not advance arguments on the legal ground, the Tribunal did not find it necessary to adjudicate these grounds.

3. Reliability of statements given by Shri S.K. Terdale:
The Tribunal examined the reliability of the statements given by Shri S.K. Terdale, who admitted to maintaining the diary and recording the deposits against the name of the assessee. However, Terdale could not identify the persons who brought the money or provide any corroborative evidence. The Tribunal found that Terdale's statements were not substantiated and could not be used against the assessee. The Tribunal noted that the assessee denied the transactions and did not accept Terdale's statements, reinforcing the view that the statements were unreliable.

4. Burden of proof and presumption under section 292C of the Income Tax Act:
The Tribunal discussed the presumption under section 292C, which applies to the person from whom documents are seized during a survey. In this case, the presumption applied to the society/bank, not the assessee. The Tribunal found that the society/bank failed to discharge its burden of proof to substantiate the diary entries. The Tribunal agreed with the assessee's contention that proving a negative fact is impermissible under the law.

5. Correlation between loans given to relatives of the assessee and alleged undisclosed deposits:
The AO attempted to correlate the loans given to the assessee's relatives with the alleged undisclosed deposits. The Tribunal found that the loans were business loans secured against stock and repaid within a short period, indicating they were independent transactions unconnected with the alleged deposits. The Tribunal concluded that the AO's theory of converting black money into white was not supported by the facts and circumstances of the case.

Conclusion:
The Tribunal set aside the orders passed by the CIT(A) and directed the AO to delete the impugned additions for all three years under consideration. The appeals of the assessee were allowed, and the stay applications were dismissed as infructuous.

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