Income Tax Appellate Tribunal Amritsar has upheld deletion of   additions u/s 68 made without taking into account the availability of funds with the parties and made merely on the fact that the money was transferred to the assessee’s account either on the same date, or within one or two days of it having been deposited in the parties accounts.

Case Details:
ITA No.39/Asr/2014;  AY: 2010-11
Dy. Commr. of Income Tax (Appellant) vs Sh.Dhanraj Singh (Respondent)
Date of Order: 06-10-2015

Brief Facts of the Case:
The assessee was proprietor of M/s. Prince Fabrics trading in cloth on wholesale basis. The assessee firm had taken unsecured loans from five family members amounting to 20 lakhs. The Assessing Officer (AO) noted that though amounts had been taken through cheque, each party first got cash deposit of the same amount in their bank account which in turn were transferred to the bank account of the assessee on the same day or within 2-3 days. Accordingly, the AO asked the assessee to explain the source of all these cash deposits in the bank accounts of Smt. Rupinder Kaur, Dhanraj Singh HUF, Smt. Harinder Kaur, Sh. Ravi Raj Singh and Sh.Harjot Singh, which ultimately landed in the bank account of Sh. Dhanraj Singh to determine the genuineness of the transactions. The assessee was also asked to explain why these cash deposits should not be treated as his income.

The assessee furnished copy of accounts confirmed by depositors and their income tax particulars. He further explained that the cash deposited in the accounts of the family members is represented by funds left by assessee’s parent on their death. The fund was lying with various relatives and has been distributed and deposited in bank account of family members as received. The assessee further contended that all recipients of the fund has declared them as income and tax due on the funds so received has already been paid.

 AO held that the assessee’s explanation was not satisfactory and that he had failed to prove the genuineness of the transactions. Accordingly AO made an addition of Rs.20 lacs u/s 68 of the Income Tax Act, 1961.

On appeal, CIT(A) deleted the addition.

Before ITAT, department contended that the amounts were transferred within a day or so of their having been deposited in the bank accounts of the creditors; that moreover, no evidence was brought by the assessee regarding the relatives and friends to whom money had been given by the deceased parents of the assessee. Further, to buttress the argument that if the amount is transferred on the same day as on which it is deposited in the creditor’s account and the source thereof is not known, addition is called for, reliance was placed on “Dayal Singh & Sons vs. CIT”, 335 ITR 90 (P&H).

The assessee contended that his onus stood duly discharged. Confirmations were filed. Income tax returns and bank statements of the parties were also filed. The AO asked the assessee to prove the source of the source, which is not permissible under the law. It was the AO’s burden which he miserably failed to discharge. Apropos the proposition that the assessee is not supposed to prove the source of the source of the credits.

Excerpts from the ITAT Order:

Having heard the rival contentions in the light of the material available on record, we find that as per the assessment order (page-2), the specific information asked for by the AO was as follows:

“Please prove credit-worthiness of persons from whom fresh unsecured loan taken. Furnish bank accounts statements from which money given to assessee.”

So, the assessee was asked by the AO to prove the credit-worthiness of each of his creditors. However, from the bank statement of the creditor, as filed by the assessee before the AO and the ld. CIT(A) and also filed before us, the following facts are discernible:

i) Smt. Rupinder Kaur lent Rs.5 lacs to assessee by cheque. As per her return of income for the year under consideration, she had total income of Rs.700500/- to her credit, as income from other sources.

ii) Sh.Dhanraj Singh gave loan of Rs. 5 lac to assessee by cheques. His return of income for the year under consideration shows gross total income of Rs.571334/-, as income from other sources.

iii) An amount of 2 lacs was lent to the assessee by Smt. Harinder Kaur. Her return of income for the year depicts a sum of Rs.1163913/- as her gross total income. As per the computation of income, she earned Rs.1166335/- as income from capital gain.

iv) Sh.Ravi Raj Singh gave Rs.4 lacs to the assessee by cheques. Rs.600698/- has been shown as his gross total income in his return of income, as income from other sources.

v) Rs. 4 lacs was given to the assessee by Harjot Singh. As per his return, his gross total income is Rs.700342/-, as income from other sources.

From the above, it is obvious that each of these creditors did have the capacity to pay the sums given by them to the assessee.

Thus, evidently, the creditworthiness was of each one of these creditors of the assessee stands proved beyond the pale of a doubt.

The AO, however, without taking into consideration the above availability of funds with the creditors, merely based the addition on the fact that the money in all these cases was transferred to the assessee’s account either on the same date, or within one or two days of it having been deposited in the creditors’ accounts. This is precisely what has been stressed by the ld. DR before us also. However, this fact, by itself cannot and does not lead to the inexorable conclusion that the credits in the assessee’s account do not stand explained. The material factor is that amounts more than these credits stood available to the creditors at the time of advancing them to the assessee. For these reasons, the cases relied on by the ld. DR are not relevant to the facts of the present case. Hence, by producing, inter-alia, the returns of income and bank accounts of all his creditors before the AO, the assessee amply discharged his onus. Ergo, the addition could not stand. It has rightly been deleted by the ld. CIT(A).

Besides, it is note-worthy, that the creditors have paid the tax due on these amounts.

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