2026 (2) TMI 1059 - AT - Income Tax

Unexplained income and loan genuineness: bank evidence and presumptive taxation can overturn unexplained deposit additions.

Whether cash receipts are unexplained under section 69A and whether a claimed loan is genuine were tested by documentary corroboration. Bank statements, ... Addition u/s 69A - unexplained investment towards purchase of agricultural land and unexplained cash deposits in the bank account - Assessee is a non-filer of return of income - Unexplained investment towards purchase of agricultural land - HELD THAT:- We find the AO while examining the source of purchase of agricultural land found that the assessee while explaining the source of investment has explained that he has received a loan of Rs. 10 lakhs from Shri Gawade Maruti Ramdas. AO rejected the contention of the assessee on the ground that the assessee has not given the bank statement of Shri Gawade Maruti Ramdas for the entire year but has given the statement for the part period and that Shri Gawade Maruti Ramdas has declared income of Rs. 4,28,216/- only for the assessment year 2018-19. A perusal of the two bank statements shows that before issue of cheques for Rs. 5 lakhs each on 23.11.2017 there is cash deposit of Rs. 1,00,000/- on 18.11.2017 in the bank account No.23440210000663 and Rs. 1,08,000/- on 18.11.2017 in the bank account. Since, there are no immediate cash deposits prior to the giving of loan except the above two amounts and since Shri Gawade Maruti Ramdas is a practicing doctor has regularly filed his return of income and has confirmed to have given the loan of Rs. 10 lakhs to the assessee, we, therefore, accept his creditworthiness to the extent of Rs. 8 lakhs and the balance amount of Rs. 2 lakhs is not proved from the bank statement. We, accordingly, modify the order of the Ld. CIT(A) / NFAC and sustain an amount of Rs. 2 lakhs as against the amount of Rs. 10 lakhs sustained by the CIT(A) / NFAC. Thus, the assessee gets relief of Rs. 8 lakhs. AO is directed to modify the order accordingly. Addition u/s 69A on account of unexplained cash deposit - assessee is showing business income from Missal Pav Centre and has declared turnover and offered presumptive income @ 8% - The business income declared by the assessee has been accepted by the AO. We, therefore, find merit in the arguments of the Ld. Counsel for the assessee that the source of the said deposit is out of the business receipt of the Missal Pav Centre as well as the previous withdrawals. It is an admitted fact that the assessee has offered presumptive income @ 8% on turnover u/s 44AD of the Act. Therefore, there is no justification on the part of the CIT(A) / NFAC in sustaining the addition made by the AO u/s 69A. Issues: (i) Whether the addition of Rs.10,00,000 sustained by the CIT(A) as unexplained investment (section 69A) is justified where the assessee claims a loan from a relative supported by bank statements and confirmation; (ii) Whether the addition of Rs.5,77,500 u/s 69A for unexplained cash deposits is justified where the assessee declared business turnover and offered presumptive income under section 44AD.Issue (i): Whether the loan of Rs.10,00,000 is proved such that the addition sustained by the CIT(A) should be reduced or deleted.Analysis: The assessee produced the lender's return of income for the relevant year, a confirmation of loan, and full-year bank statements showing account balances and account-payee cheque transfers of Rs.5,00,000 from each of two accounts. The assessing officer's contrary findings about partial bank statement production and absence of account-holder name on statement were shown to be factually incorrect on the record. The bank statements, filing history and confirmation were examined to determine the lender's creditworthiness and the portion of loan that could be satisfactorily substantiated.Conclusion: The Court accepts the genuineness of the loan to the extent of Rs.8,00,000 and disallows creditworthiness for Rs.2,00,000; the addition sustained of Rs.10,00,000 is modified to Rs.2,00,000 (in favour of assessee in part).Issue (ii): Whether unexplained cash deposits totaling Rs.5,77,500 can be treated as income u/s 69A when the assessee has declared business turnover and offered presumptive income under section 44AD.Analysis: The assessee declared turnover from a small business and opted for presumptive taxation under section 44AD; the declared turnover and admitted withdrawals support the inference that cash deposits originated from business receipts and prior withdrawals. The assessing officer and CIT(A) did not adequately account for declared turnover and accepted presumptive income in sustaining the addition.Conclusion: The addition of Rs.5,77,500 u/s 69A is not justified and is set aside (in favour of assessee).Final Conclusion: The appeal is partly allowed by reducing the sustained unexplained investment addition from Rs.10,00,000 to Rs.2,00,000 and by deleting the addition of Rs.5,77,500 relating to unexplained cash deposits; the assessing officer is directed to modify the assessment accordingly.Ratio Decidendi: Bank statements and lender's income returns that corroborate fund transfers and demonstrate sufficient pre-existing balances can establish loan genuineness for part or whole; declared turnover and acceptance of presumptive income under section 44AD negate treating corresponding bank cash deposits as unexplained income under section 69A.