2005 (7) TMI 318 - AT - Income Tax

Tribunal orders AO to re-examine cash credits, case selection, and allows appeal for statistical purposes

The Tribunal directed the AO to re-examine the cash credits and case selection issues, allowing the appeal for statistical purposes and dismissing general ... Cash Credits Issues Involved:1. Cash credits in the accounts of the assessee.2. Capacity of cash creditors to advance loans.3. Genuineness of transactions.4. Selection of the case for scrutiny.Issue-wise Detailed Analysis:1. Cash Credits in the Accounts of the Assessee:The primary issue revolves around cash credits noticed by the Assessing Officer (AO) in the balance sheet. The assessee, a partnership firm, had shown credits of Rs. 9,84,237 in the head office and Rs. 65,37,101 in the branch office. The AO required the assessee to produce the cash creditors, and despite some appearing, others evaded. The AO issued summons under section 131 of the Act, but some creditors still did not respond. The AO added the sums to the total income of the assessee, doubting the genuineness of the credits.2. Capacity of Cash Creditors to Advance Loans:The AO questioned the capacity of the creditors to advance the sums. For instance, Sh. Ajay Murdiya, who deposited Rs. 1,00,000, explained the source as IVPs inherited from his mother, but could not provide detailed evidence. The AO doubted his capacity, considering him a person of petty means. The assessee argued that the identity and transaction were established through account payee cheques and confirmations.3. Genuineness of Transactions:The Tribunal discussed the legal principles under section 68, emphasizing the need to prove the identity, creditworthiness, and genuineness of transactions. It highlighted that the AO's satisfaction must be based on valid reasons, and the enquiry should be reasonable and just. The Tribunal noted that even if payments were made through cheques and confirmations were provided, further investigation was required to establish genuineness.4. Selection of the Case for Scrutiny:The assessee also challenged the selection of the case for scrutiny. Initially, the assessee did not press this ground, but later requested its restoration for consideration. The Tribunal found this request justified and restored the ground to the AO for examination.Conclusion:The Tribunal restored the issue of cash credits and the selection of the case for scrutiny to the AO for fresh examination. The AO was directed to decide the issues afresh after giving the assessee an opportunity to present additional evidence. The appeal was allowed for statistical purposes, with general grounds dismissed.