2019 (9) TMI 622 - AT - Income Tax

Scrutiny under CASS - addition of unexplained capital of the partner of the firm u/s 68 - AO also disallowed interest - second round of assessment,the assessee again could not explain the source of capital introduction - HELD THAT - AO was correct in holding these credits as unexplained in the hands of the assessee and the CIT(A)was justified in confirming the addition as unexplained capital of the assessee firm u/s 68 of the Act. Facts of case on hand demonstrate unexplained cash deposit in the books of account of M/s Verma Service Station P. Ltd. for which neither the assessee firm nor the partners could give any evidence or satisfactory explanation regarding identity and source of such deposits and therefore, disbelieving the contrary explanation offered by the appellant assessee in the two round of proceedings before the Tribunal and the Authorities below without substantiating with corroborative documentary evidences, the addition is confirmed as unexplained capital u/s 68 of the Act in the hands of the firm. Following the jurisdictional Hon ble Allahabad High Court in the case of Jagmohan Ram Chandra Vs. CIT 2004 (8) TMI 46 - ALLAHABAD HIGH COURT we hereby upheld the order the ld. CIT(A) and confirmed the addition - Decided against assessee.

Summary

Issues Involved:
1. Sustaining addition of ?92,00,000/- as unexplained capital.
2. Examination of the source of the source of deposits.
3. Compliance with legal principles and factual correctness.

Detailed Analysis:

1. Sustaining Addition of ?92,00,000/- as Unexplained Capital:
The assessee filed a return declaring a total income of ?4,86,270/- for A.Y. 2009-10. The case was scrutinized, and the assessment was completed at ?1,01,55,498/-, including the disallowance of ?92,00,000/- as unexplained capital. The assessee argued that the identity, genuineness, and creditworthiness of the partners who deposited the amount were established. However, the AO and CIT(A) found no documentary evidence supporting the source of these deposits, leading to the addition being sustained under Section 68 of the Income Tax Act. The Tribunal upheld this decision, emphasizing the lack of corroborative evidence and the inconsistency in the assessee's explanations.

2. Examination of the Source of the Source of Deposits:
The CIT(A) and AO scrutinized the source of the ?92,00,000/- deposited by the partners, who claimed it was from the advance sale of land. Despite multiple opportunities, the assessee failed to provide evidence such as landholding documents, agreements with purchasers, or details of the transactions. The Tribunal noted that the burden of proof lies with the assessee to explain the source and nature of cash credits, which was not satisfactorily discharged. The Tribunal cited several judicial precedents reinforcing that the onus is on the assessee to establish the identity, creditworthiness, and genuineness of the transactions.

3. Compliance with Legal Principles and Factual Correctness:
The Tribunal referred to various cases, including CIT vs. Precision Finance Pvt. Ltd. and CIT vs. Oasis Hospitalities Pvt. Ltd., to underline the principles governing unexplained cash credits. It was reiterated that mere affidavits or confirmatory letters are insufficient without substantial evidence. The Tribunal observed discrepancies in the explanations provided by the assessee, such as varying sources of the deposited amount and the failure to produce the partners for verification. The Tribunal concluded that the assessee's explanations were inconsistent and unsupported by documentary evidence, justifying the addition under Section 68.

Conclusion:
The Tribunal dismissed the appeal, confirming the addition of ?92,00,000/- as unexplained capital under Section 68. The decision was based on the assessee's failure to provide satisfactory evidence for the source of the deposits and the inconsistency in the explanations provided. The Tribunal upheld the CIT(A)'s order, emphasizing the legal principles and burden of proof required to substantiate the genuineness of cash credits.