Additions u/s 68 and 69 for transfer entries in capital account on account of rectification can not be sustained treating it alleged unexplained credit and unexplained investments – ITAT
ABCAUS Case Law Citation:
ABCAUS 2082 (2017) (09) ITAT
The present appeal was been filed by the assessee against the order of the CIT(A) confirming the order of the Assessing Officer (AO) making additions u/s 68 and 69 of the Income Tax Act, 1961 (Act)
Assessment Year : 2008-09
Brief Facts of the Case:
AO during the course of assessment proceedings noted that the assessee had credited sums to his capital account by way of transfer entries on account of rectification and transfer of amounts from HUF account to his individual account for the following:
- Rectification entry for Sale of agricultural land wrongly credit in HUF account
- Rectification entry on account of residential house wrongly shown in HUF account
- Rectification entry on account of agricultural land wrongly shown in HUF account
The assessee explained that the eldest son of the assessee used to maintain accounts of the business and he also used to prepare the Income-tax returns of all the members of the family single handedly, since beginning. The assessee and all other members trusted him, in good faith and they used to sign whatever papers were prepared by him. Even the cheque books of family members, duly signed in blank, were kept in his custody.
However, it was discovered that the eldest son had made a major goof up of the accounts of the assessee by, interalia, showing the self acquired assets of the assessee as the assets belonging to assessee’s HUF, without any permission of or concurrence of the assessee.
The assessee explained that the credit transfer entries in his capital account reflected the rectification carried out to set right the fraud inflicted by his eldest son.
However, the AO was not satisfied by the explanation of the assessee and was of the view that since the assessee was also the Karta of the HUF it was the duty and responsibility of the assessee to see the items and therefore could not claim relief on the ground of fraud and he should have seen whether the individual property was accounted in individual returns and HUF property is accounted in HUF books.
Accordingly, the AO treated the said amount as income of the assessee u/s 68 and 69 as the nature and source of the credit is not explained.
When the matter went before the CIT(A) the CIT(A) confirmed the order of the AO.
Observations made by the Tribunal:
Sale of Agriculatural Land
The Tribunal observed that it was apparent that the agricultural land had been duly purchased and sold by the assessee and the proceeds related to the assessee as in individual.
The Tribunal noted that the assessee had simply made a transfer entry by transferring the said amount from HUF account to the individual account. This was not a case where it could be said that the nature and source was not proved.
It was observed that the assessee had only passed a corrective entry by transferring the amount involved to the individual capital account from HUF capital account.
The ITAT opined that neither the AO nor the CIT(A) took the pain to understand the facts correctly but made and sustained the addition just for the sake of making the addition.
Residential house wrongly shown in HUF
The ITAT observed that the assessee had shown the said house in the Balance Sheet under the head ‘Fixed Assets’ which was represented the transfer entry from HUF account to individual account as the assessee had built up the house long back in his individual capacity.
The ITAT opined that it was not a case where the assessee had made an investment outside the books of account so that the addition could be made treating it as an unexplained investment. This merely represented transfer of property from the individual account to the HUF account. At the most the declaration could be regarded to be a gift in favour of the assessee individual but it could not be regarded as an unexplained investment.
Transfer of agricultural land from HUF account to individual account
It was observed that the assessee had credited the sum to his individual capital account being the agricultural land belonging to him which was erroneously entered in the earlier years as the agricultural land belonging to the HUF.
It was noted from the Balance Sheet of the HUF that this property was duly shown as agricultural land and the assessee had transferred the said agricultural land to his individual account by passing a rectification entry. This was not a case where it could be said that the assessee had purchased the said agricultural land during the impugned assessment year so that it could be treated as unexplained investment. The source of the said credit in the capital account was coming out of the Balance Sheet of the HUF.
All the said additions were delete.