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, the lender's filed income return and a loan confirmation established genuineness for part of the loan, leading to disallowance reduced to Rs.2,00,000. Declared turnover and adoption of presumptive taxation supported the commercial origin of cash deposits, leading to deletion of the Rs.5,77,500 addition. The appeal was partly allowed and the assessing officer directed to modify the assessment accordingly.

---

---

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.

---