2021 (7) TMI 282 - AT - Income Tax

Undisclosed purchase of car and the investment so made in purchase of car - assessee is engaged in agricultural and diary activities - HELD THAT - Considering the fact that the agricultural and diary activities are predominantly rural activities where the transactions continues to be undertaken predominantly in cash rather than through formal banking channels, what is relevant is availability of overall cash in hands of the assessee at the time of purchase of the car towards the end of the financial year i.e, on 13.02.2013. On perusal of the return of income alongwith accompanying cash flow statement, we find that the assessee has generated net cash receipts of ₹ 191,240/- from agricultural operations, net cash receipts (before depreciation) of ₹ 315,589/- from diary business during the year under consideration which reasonably explains the source of purchase of car for which part payment was made in cash of ₹ 369,850/-. As far as withdrawals for household expenses are concerned, we find that the same is again demonstrated partly from agricultural and diary activities during the year as well as availability of cash at the beginning of the financial year. We therefore find that the assessee has duly explained the source of payment for purchase of car and the investment so made in purchase of car cannot be treated as made out of undisclosed sources - Decided in favour of assessee.

Summary

Issues:
1. Assessment order validity under section 143(3) r.w.s. 153A
2. Addition of ?369,850 as unexplained investment

Analysis:

Issue 1: Assessment order validity under section 143(3) r.w.s. 153A
The assessee challenged the assessment order passed under section 143(3) r.w.s. 153A as bad in law and fact. The appellant contended that there was no change in the source of income, being a farmer earning from agriculture and dairy business. Despite not maintaining regular books of accounts, the assessee explained the cash payment for a car purchase on 13.02.2013 through cash flow statements, capital accounts, and balance sheets prepared on an estimated basis. The Assessing Officer (AO) added ?369,850 as unexplained investment due to the absence of cash withdrawals in the bank statement. However, the appellant argued that the payment was justified as it came from disclosed sources of income, supported by financial statements and cash flow statements from AY 2010-11 to AY 2013-14. The AO's rejection was deemed unjustified as the entire receipts were assessed for tax, and the CIT(A) summarily upheld the addition without valid reasons.

Issue 2: Addition of ?369,850 as unexplained investment
The CIT/DR supported the AO's findings, emphasizing the lack of maintained books of accounts and insufficient cash availability as per the capital account. The AO considered the car purchase payment as from undisclosed income, adding it to the total income for AY 2013-14. However, upon review, the Tribunal noted the regular filing of returns since AY 2010-11, with reported agricultural and dairy income for the relevant year. The appellant justified the cash payment for the car through net cash receipts from agricultural and dairy activities, explaining the source of funds. The Tribunal found the explanation reasonable, directing the deletion of the ?369,850 addition as the investment was not from undisclosed sources.

In conclusion, the Tribunal allowed the appeal, emphasizing the adequacy of explained sources for the car purchase and overturning the addition of ?369,850 as unexplained investment.