2014 (2) TMI 464 - AT - Income Tax

Appeals dismissed, CIT decision upheld on peak investment addition due to lack of evidence & questionable transactions.

ITO Ward-1 Versus Pawan Kumar S/o Sh. Raj Krishan Sangwan

The appeals were dismissed, and the CIT Appeal's decision regarding the addition of peak investment was upheld due to insufficient evidence and ... Addition made u/s 68 of the Act - Undisclosed cash deposits – Held that:- The confirmations filed are on stamp papers but these are not verified by any notary or other authority - The assessee has not disclosed the purpose for which these loans were raised - Loan stated to have been raised without any purpose - The amount was not utilized for any purpose during the year - No evidence had been placed on record to show that such amount unutilized for any purpose in future - Nothing on record to show the repayment of these loans - the true nature of these transaction remains to be established - Simply land holding shall not prove the capacity or creditworthiness of these lenders. It has to be established by yield and availability of such money with them to lend that too without interest - The assessee was in a government service in the railway department - These amounts were not utilized during the financial year for any purpose - No one will raise loan just to deposit in the SB A/c with the bank - The CIT Appeal was justified in restricting the addition to the peak amount - He has rightly directed the AO to restrict the addition to the peak amount - only the peak amount of the credit entries in the bank account of assessee can be added to the income of the assessee supports the order of the CIT Appeal – Decided against assessee. Issues involved:1. Addition of cash deposits in the bank account as income from undisclosed sources.2. Treatment of peak investment of cash deposits.3. Justification of CIT Appeal's decision regarding the addition of peak investment.4. Disputed loans and deposits taken by the assessee.5. Creditworthiness of the persons from whom loans were taken.6. Nature and purpose of transactions in the bank account.7. Application of Section 68 of the IT Act.Detailed Analysis:1. Addition of Cash Deposits:The assessing officer added a substantial amount to the assessee's income for cash deposits in the bank account. The CIT Appeal upheld part of the addition, emphasizing the lack of satisfactory explanation for the cash transactions and the failure to disclose the nature and purpose of the transactions. It was deemed that these activities were beyond the scope of the assessee's employment, justifying the addition as income from undisclosed sources.2. Treatment of Peak Investment:The CIT Appeal directed the assessing officer to consider the peak investment of cash deposits, limiting the addition to a specific amount. The AR provided a statement of peak investment, leading to the sustained addition of a reduced sum. The CIT Appeal's decision to restrict the addition to the peak amount was supported by relevant case laws and deemed justified.3. Justification of CIT Appeal's Decision:The AR argued that the amounts deposited in the bank account were from loans received from various individuals, asserting their creditworthiness through land holdings and submitted confirmations. However, the DR contended that the loans were not genuine, and the purpose of these transactions remained undisclosed. The CIT Appeal's decision to restrict the addition to the peak amount was upheld based on the lack of evidence regarding the utilization or repayment of the loans.4. Disputed Loans and Deposits:The AR presented details of the loans received from individuals, highlighting their creditworthiness through land holdings and submitted confirmations. In contrast, the DR questioned the genuineness of the loans and criticized the lack of disclosure regarding the purpose of these transactions.5. Creditworthiness of Persons:The creditworthiness of the individuals providing loans was a point of contention. While the AR argued that land holdings demonstrated their capacity to lend, the DR emphasized the need for evidence of the availability of funds and the purpose behind the loans, especially given the interest-free nature of the transactions.6. Nature and Purpose of Transactions:The nature and purpose of the transactions in the bank account were scrutinized, with the assessing officer and the CIT Appeal questioning the rationale behind raising loans without a clear purpose or utilization during the financial year. The lack of evidence regarding repayment or future use of the loans raised doubts on the genuineness of the transactions.7. Application of Section 68 of the IT Act:The application of Section 68 of the IT Act was crucial in establishing the legitimacy of the deposits received. The burden was on the assessee to prove the identity of the lenders, their capacity to lend, and the genuineness of the transactions. The absence of concrete evidence regarding the purpose and utilization of the loans raised concerns about the true nature of the transactions.In conclusion, the appeals were dismissed, with the CIT Appeal's decision regarding the addition of peak investment being upheld based on the lack of substantiated evidence and the questionable nature of the transactions in the bank account.