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2024 (5) TMI 1590 - AT - Income TaxAddition on account of cash deposits in bank account - unexplained cash credit invoking Sec.68 - cash advances received against agreements for sale of agricultural land from two persons - HELD THAT - Various sale agreements confirmations of the parties and affidavits were filed by the assessee. Shri Shatrughan Nishad was not present at the assessment and affidavit of Shri Deen Dayal Nishad and Shri Shatrughan Nishad were filed before the Ld. CIT(Appeals)/NFAC as additional evidence. The department has accepted in respect of five parties regarding the cash advanced received by the assessee but in respect of Shri Deen Dayal Nishad and Shri Shatrughan Nishad the same were rejected summarily since affidavits were not filed at the level of the A.O and amount of Rs. 20 lacs were added. Similarly when the remand report was called for from the A.O regarding these affidavits filed however as already examined that the contentions raised by the A.O in such affidavit does not have any legal basis to survive and hence have been rejected. The factum of transaction i.e. land to be sold in respect of 7 parties has been accepted by the department the agreements have been accepted and confirmations have also been accepted. That on the same parameters and factum of land the department has not brought any evidence as to why for the two people viz. Shri Deen Dayal Nishad and Shri Shatrughan Nishad the department holds the amount as non-genuine and treats the same as unexplained cash credit. That neither the A.O nor the Ld. CIT(Appeals)/NFAC has doubted the entire transaction entered into by the assessee with these 7 persons. DR could not establish that why the affidavits of other parties were accepted by the department and why affidavits which were placed as additional evidence i.e. with regard to of Shri Deen Dayal Nishad and Shri Shatrughan Nishad were held as invalid. More so because it pertains to the same land agreements which for the other parties the department has already accepted as genuine. DR also could not produce any documentary evidence to justify the stand of the department in rejecting the affidavits filed and thereby consequent addition in respect of Shri Deen Dayal Nishad and Shri Shatrughan Nishad. Considering all addition made by the department u/s. 68 of the Act as unexplained cash credit is unfounded arbitrary misplaced and bad in law. Resultantly the A.O is directed to delete the said additions from the hands of the assessee.
The core legal issue considered in this appeal pertains to the validity and applicability of addition made under Section 68 of the Income Tax Act, 1961, on account of unexplained cash credits amounting to Rs. 20,00,000/- deposited in the assessee's bank account. The questions revolve around whether the cash advances received against agreements for sale of agricultural land from two persons-Shri Deen Dayal Nishad and Shri Shatrughan Nishad-were genuine and adequately proved, thereby negating the applicability of Section 68. The Tribunal also examined the authenticity of supporting documents such as sale agreements, affidavits, and confirmations, and the procedural propriety of the assessment and appellate proceedings in regard to these evidences.
The principal issue can be subdivided into the following legal questions:
Issue-wise Detailed Analysis 1. Justification of Addition under Section 68 on Account of Cash Advances Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. The burden lies on the assessee to satisfactorily explain the nature and source of such credits. The genuineness of transactions and identity of creditors must be established through credible evidence, such as agreements, confirmations, affidavits, and corroborative documents. Court's Interpretation and Reasoning: The Assessing Officer initially made the addition of Rs. 20,00,000/- treating advances from Shri Deen Dayal Nishad and Shri Shatrughan Nishad as unexplained cash credits, primarily because affidavits from these two persons were not produced during the assessment proceedings. The AO also doubted the authenticity of the documents on the ground of discrepancies in stamp paper dates and signature variations. However, the AO did not conduct any substantive inquiry into the financial capacity of Shri Deen Dayal Nishad, merely stating he was not a man of means to advance Rs. 17,00,000/-, which was held to be speculative and unsupported. Key Evidence and Findings: The assessee had produced sale agreements, confirmations, and affidavits for all parties except the two in question at the assessment stage. Subsequently, affidavits for these two parties were filed before the first appellate authority as additional evidence. A remand report was called for by the appellate authority to verify these affidavits. The remand report did not conclusively disprove the transactions but raised doubts based on the date discrepancy on the stamp paper and signature differences. Application of Law to Facts: The Tribunal noted that the date discrepancy on the stamp paper was likely a typographical error by the stamp vendor, supported by serial number consistency across all stamp papers issued to various parties on the same date. The Tribunal also observed that the signature differences were minor and not supported by any evidence from the department to prove forgery or misrepresentation. The department failed to cross-examine the stamp vendor or conduct a meaningful inquiry into the financial capacity of the creditor, rendering its conclusions speculative. Treatment of Competing Arguments: The department relied on procedural non-compliance (non-filing of affidavits at assessment stage), discrepancies in documents, and unverified assertions about the financial status of the creditor. The assessee countered with explanations about inadvertent errors, consistency in other accepted transactions, and the principle that the Income Tax Act is a welfare legislation where benefit of doubt should be given to the assessee in absence of conclusive proof. Conclusion: The Tribunal concluded that the addition under Section 68 was arbitrary and unfounded, as the genuineness of the transactions was not disproved by any cogent evidence. The affidavits filed at the appellate stage, though additional evidence, were not properly considered or rejected without due inquiry by the department. 2. Admissibility and Weight of Affidavits Filed at Appellate Stage Legal Framework: Rule 46A(3) of the Income Tax Rules permits the appellate authority to call for additional evidence not produced before the Assessing Officer if it is relevant and necessary. The appellate authority must consider such evidence fairly and direct appropriate verification. Court's Interpretation and Reasoning: The affidavits of Shri Deen Dayal Nishad and Shri Shatrughan Nishad were filed as additional evidence before the CIT(Appeals). The appellate authority rightly called for a remand report for verification. However, the Assessing Officer failed to conduct any meaningful enquiry or provide substantive reasons to reject these affidavits. The Tribunal held that the department's summary rejection of affidavits without legal reasoning or investigation was improper. Key Findings: The affidavits were consistent with other accepted documents and transactions. The department's failure to cross-examine or investigate the parties or the stamp vendor further weakened its stance. Application of Law to Facts: The Tribunal emphasized that the department's rejection of affidavits without inquiry was contrary to principles of natural justice and fair procedure. The assessee was entitled to have their evidence fairly considered, especially when it related to the same land transactions accepted for other parties. Conclusion: The affidavits filed at the appellate stage were admissible and should have been accepted unless disproved by credible evidence, which was lacking. 3. Validity of Discrepancies in Stamp Paper Dates and Signature Differences Legal Framework: Minor discrepancies in documentary evidence do not ipso facto render transactions invalid unless they are shown to be material or indicative of fraud. The burden is on the department to establish forgery or fabrication. Court's Reasoning: The Tribunal found that the date discrepancy on the stamp paper was a plausible typographical error by the stamp vendor, supported by consistent serial numbers and dates on other stamp papers issued on the same day. Regarding signature differences, the department did not produce expert opinion or evidence to show that the signatures were forged or by different persons. Application to Facts: The Tribunal accepted the assessee's explanation that one signature included only the name, while another included the full name and surname, which is not uncommon. The department's failure to conduct handwriting analysis or cross-examination undermined its argument. Conclusion: The discrepancies were not sufficient to discredit the genuineness of the transactions or justify addition under Section 68. 4. Department's Reliance on Financial Capacity of Shri Deen Dayal Nishad Legal Framework: The department must conduct a proper inquiry and produce evidence before disbelieving a transaction based on the financial capacity of a creditor. Court's Reasoning: The AO's assertion that Shri Deen Dayal Nishad was not a man of means to advance Rs. 17,00,000/- was unsubstantiated and speculative. No inquiry or evidence was brought on record to support this claim. Conclusion: The AO's conclusion was held to be hypothetical and unsustainable in law. 5. Procedural Fairness in Rejection of Affidavits Legal Framework: The principles of natural justice require that evidence filed by the assessee be considered fairly and not summarily rejected without inquiry. Court's Reasoning: The department failed to conduct any enquiry into the affidavits filed by Shri Deen Dayal Nishad and Shri Shatrughan Nishad and rejected them summarily. The Tribunal found this approach contrary to fair procedure and the spirit of the law. Conclusion: The rejection of affidavits without proper inquiry was improper and the benefit of doubt was rightly given to the assessee. Significant Holdings "The addition made by the department u/s. 68 of the Act as unexplained cash credit is unfounded, arbitrary, misplaced and bad in law." "The inability of the appellant to establish authenticity of the documents filed before the Assessing Officer led to the rejection of the appellant's claim for the amounts... However, the remand report does not provide any substantive enquiry or evidence to disprove the genuineness of the transactions." "The alleged disparity in date of stamp paper is a typographical error on the part of the stamp vendor, as evident from the serial number consistency and date of issue of other stamp papers." "The department's rejection of affidavits filed at the appellate stage without proper enquiry or legal basis is not sustainable." "The burden on the department to disprove the genuineness of the transactions was not discharged, and hence, the benefit of doubt arises in favour of the assessee." The Tribunal thus established the core principle that unexplained cash credits under Section 68 cannot be added without credible evidence disproving the genuineness of the transactions. Mere procedural lapses or minor discrepancies in documents, without substantive proof, are insufficient to uphold additions. The appellate authority is empowered to accept additional evidence and must ensure fair inquiry before rejecting such evidence. The final determination was to delete the addition of Rs. 20,00,000/- made by the Assessing Officer and allow the appeal of the assessee.
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