Validity of additions framed u/s 68 are sustainable where the assessee sufficiently established the identity, capacity and genuineness of transactions with creditors

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Validity of additions framed u/s 68 are sustainable where the assessee sufficiently established the identity, capacity and genuineness of transactions with creditors 

 

The issue of Validity of additions framed u/s 68 are sustainable where the assessee sufficiently established the identity, capacity and genuineness of transactions with creditors was there in Mallika Iyengar Vs ITO [ITA No. 512/Bang/2021].

Short Overview of the case:

Assessee is an individual.

She is a spinster and lives with her 86 years old father.

During the previous year relevant to assessment Year 2017- 18, the assessee deposited a sum of Rs. 30 lakhs in cash in her Bank A/c.

The source of funds for cash deposit to the extent of Rs. 22 lakhs received from assessee’s father and two sisters of Rs. 13 lakhs, Rs. 4 lakhs and Rs. 5 lakhs was accepted by the AO.

 The AO did not accept the explanation of source of cash from Shri. Narayan Iyengar HUF (hereinafter referred to as HUF) of Rs. 3 lakhs and from Shri. Upendra, brother of the assessee of a sum of Rs. 5 lakhs. Mr Upendranath’s name has been wrongly referred to by the AO in the Order of Assessment as K. S. Vasundhra.

 With regard to the receipt of cash of Rs. 3 lakhs by the assessee from HUF, the assessee filed a confirmation from M. S. Narayana Iyengar, Kartha of the HUF, that a sum of Rs. 3 lakhs is given by the HUF to the assessee on 10.11.2016 who also is also member of the HUF.

A copy of the Income tax Returns of the HUF for Assessment Year 2016-17 and 2017-18 was also filed. The total income declared by the HUF in these returns was a sum of Rs. 2,49,930/- and Rs. 2,52,000/- respectively.

The AO did not accept the explanation given by the assessee for three reasons: (a) Income declared by HUF for Assessment Year 2017-18 was only Rs. 2,52,000/- which is less than Rs. 3 lakhs given to the assessee (b) HUF did not give any reply to the AO’s notice dated 30.10.2016 under section 133(6) of the Act; (c) assessee did not prove that cash was given to the assessee as gratis.

On appeal, the issue before the Tribunal was whether additions framed u/s 68 are sustainable where the assessee sufficiently established the identity, capacity and genuineness of transactions with creditors?

ITAT observed as under:T

++ On this aspect, I find that Upendranath has acknowledged that he had received a sum of Rs. 5 lakhs as loan from the assessee in the previous year relevant to Assessment Year 2014-15. The Balance Sheet to this effect was filed by the assessee before CIT(A) which was not accepted for the reason that the assessee had not filed Return of Income for Assessment Year 2014-15 as her income was below taxable limit. In my view, the source of funds for the assessee having been given loan of Rs. 5 lakhs to Upendranath in Assessment Year 2014-15 cannot be a subject matter of investigation in Assessment Year 2017-18. As far as the payment of Rs. 5 lakhs by Upendranath is concerned, I find that Upendranath has acknowledged having paid a sum of Rs. 5 lakhs to the assessee on 10.11.2016 by cash. Upendranath has been filing his Return of Income and the copy of Return of Income filed by him for Assessment Years 2016-17 to 2019-20 have been filed before the lower authorities. These facts have been overlooked by the Revenue authorities. The identity of Upendranath cannot be disputed because even in the ground of appeal raised by the assessee before the CIT(A), specific assertion was made by the assessee in reply to the notice issued by the AO under section 142(1), the assessee has given all the details of Upendranath including his address and PAN number. These facts have not been considered by the AO or the CIT(A). I am of the view that the assessee has sufficiently established the identity, capacity and genuineness of the transactions and in the circumstances, the addition made cannot be sustained.

 

 

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