2023 (1) TMI 709 - AT - Income Tax

Tribunal allows appeals for unexplained cash credits and surplus on land sale

Shri Kathiravan Srinivasan Versus The DCIT, Circle-1, Trichirapalli

The Tribunal allowed the appeals for the assessment years 2010-11 and 2011-12 regarding unexplained cash credits and surplus on the sale of agricultural ... Unexplained cash credit u/s.68 - onus to explain - assessee unable to prove the identity of the debtors and their creditworthiness - CIT(A) confirmed the addition by stating that all sundry debtors said to have received loans from the assessee are persons of meager means and he considered the remand report of the AO and the loan amount received is only a bogus claim and method adopted by assessee to bring his own unaccounted cash into main stream - HELD THAT:- The assessee has filed all the details in regard to debtors from whom the assessee has received back the money. The assessee has filed all the details before the AO in regard to receipt of this money, which has been loaned out to these above stated persons. According to us, the assessee realized the sum of loan amounts from the villagers as per the submitted affidavit, confirmations, source of income and details of land holding filed, the assessee has discharged his onus of proving the sundry debtors. We noted that all these details were referred by CIT(A) back to the AO to verify the veracity and in turn, the AO referred the matter to the Revenue Officer, i.e, Tahsildar on communication from the Income-tax Department, all confirmed the transaction. It is pertinent to note that all the persons admitted have returned the money. Since the assessee has discharged all initial onus and assessee was asked to prove the source of debit entries, the assessee actually proved in the present case. In the case of DCIT vs. Rohini Builders [2001 (3) TMI 9 - GUJARAT HIGH COURT ] held that the amount representing cash credits was not includable in the total income of the assessee as the assessee had discharged the initial onus and the assessee can be asked to prove the source of the source of credit in its books of accounts, which the AO failed to do so. In view of this finding and moreover these being only debtors who have returned their loan amount to the assessee and assessee has declared all these loan amounts in their books of accounts, which were never rejected by the Department and accepted in earlier years, now they cannot go back until that the source are not proved. Thus we are of the view that the debtors cannot be added u/s.68. The assessee has discharged the onus laid u/s.68 of the Act by filing overwhelming evidences which were examined by the AO as well as by the Revenue officials of the Tamil Nadu Government and hence, we delete the addition and allow this issue of assessee’s appeal. Treating the surplus on sale of agricultural land as business income - HELD THAT:- Assessee had earned agricultural income and consistently from assessment year 2007-08 admitted agricultural income. The Revenue records also show that the same are subject to agricultural revenue and lands are agricultural lands. Even the crops are grown and agricultural activities were carried out. Hence, in the given facts, which are un-controverted, we hold that the sale proceeds are of agricultural land and not business asset as is being contended by Revenue. Hence, the same cannot be assessed to capital gains and are exempt. Accordingly, this issue of assessee in both the years is allowed. Unexplained credit being amount received temporarily from the creditor as unexplained cash credit u/s.68 - HELD THAT:- At this stage, when pointed out to ld.counsel, whether he want to file the details before AO to prove the creditor, he undertook to file complete details and to produce whatever evidence the AO wants in regard to this. On this, the CIT-DR has not objected. Hence, in view of the concession given by both the sides, we remit this issue back to the file of the AO, who will examine the creditor and then will decide accordingly. Issues Involved:1. Addition of unexplained cash credit under Section 68 of the Income Tax Act, 1961.2. Treatment of surplus on the sale of agricultural land as business income.3. Addition of unexplained credit of Rs. 3,00,00,000/- as unexplained cash credit under Section 68.Issue-wise Detailed Analysis:1. Addition of Unexplained Cash Credit under Section 68:The first common issue pertains to the addition made by the Assessing Officer (AO) on account of unexplained cash credits under Section 68 of the Income Tax Act for amounts of Rs.7,56,74,000/- for the assessment year 2010-11 and Rs.1,98,00,000/- for the assessment year 2011-12. The assessee argued that these credits were loans received back from various persons (sundry debtors) and provided explanations and proof regarding the credits. However, the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] rejected these explanations, citing the lack of identity and creditworthiness of the debtors. The AO's findings included the inability to prove the identity and creditworthiness of the debtors and the absence of proper documentary evidence.The Tribunal noted that the assessee had maintained detailed books of accounts and provided complete details, including affidavits, confirmations, and landholding details of the debtors, which were verified by the Tahsildar. The Tribunal held that the assessee had discharged the initial onus of proving the sundry debtors and that the AO had not conducted further enquiry or investigation. Referring to various judicial precedents, the Tribunal concluded that the addition under Section 68 was not warranted and deleted the additions for both assessment years.2. Treatment of Surplus on Sale of Agricultural Land as Business Income:The second issue involves the treatment of surplus on the sale of agricultural land as business income for amounts of Rs.63,02,000/- and Rs.81,10,384/- for the assessment years 2010-11 and 2011-12, respectively. The AO had treated the lands sold by the assessee to certain trusts as business assets, contending that the assessee was engaged in the business of trading in land. The CIT(A) upheld this view.The Tribunal examined the evidence provided by the assessee, including sale deeds, certificates from the Village Administrative Officer (VAO), and revenue records, which confirmed the agricultural nature of the lands. The Tribunal noted that the assessee had consistently declared agricultural income in previous years and that the lands were subject to agricultural revenue. Concluding that the lands were agricultural in nature and not business assets, the Tribunal held that the sale proceeds were exempt from capital gains tax and allowed the assessee's appeal on this issue.3. Addition of Unexplained Credit of Rs. 3,00,00,000/-:The third issue pertains to the addition of Rs.3,00,00,000/- as unexplained cash credit under Section 68 for the assessment year 2011-12. The assessee claimed that this amount was temporarily received from a creditor, Murugan Traders, and provided confirmation and bank transaction details. The AO made the addition, citing the inability to verify the creditor's identity and creditworthiness. The CIT(A) upheld the addition, stating that the assessee had not proved the creditworthiness of the payer.The Tribunal noted that the transactions were through banking channels and that the assessee had provided confirmations and ledger extracts. Given the concession by both parties, the Tribunal remitted the issue back to the AO for further examination of the creditor's details and to decide accordingly.Conclusion:The Tribunal allowed the appeals for the assessment years 2010-11 and 2011-12 on the issues of unexplained cash credits and treatment of surplus on the sale of agricultural land. The issue of unexplained credit of Rs.3,00,00,000/- was remitted back to the AO for further examination. The appeals were partly allowed for statistical purposes.