2016 (6) TMI 1506 - HC - Income Tax

Unexplained credits in the names of 19 creditors - HELD THAT -The deposited money represents the amounts towards booking received initially through M/s.Siddharth Corporation along with which the assessee has engaged in joint venture of developing the project on the land which was allotted from Surat Municipal Corporation. This is an admitted fact that the assessee has not carried out any business during the year under consideration. No evidence on record has been brought that the assessee had earned income during the year. It is rightly found by the tribunal that the assessee has duly discharged its burden of proof. In the case of Rohini Builders 2001 (3) TMI 9 - GUJARAT HIGH COURT amounts were received by the assessee by account payee cheques and initial burden of proving the credits was discharged. It is held that the assessee need not prove the source of the credits and the fact that the explanation was not satisfactory would not automatically result in deeming amounts as income of the assessee. Therefore in our view the view taken by the Tribunal is just and proper and it is not required to be interfered with. Decided in favour of the assessee.

Summary

ISSUES:

Whether the Income Tax Appellate Tribunal was justified in deleting the addition made by the Assessing Officer on account of unexplained credits of Rs. 1,45,00,000/- in the names of 19 creditors'Whether the assessee discharged the burden of proof regarding the nature and source of the deposits received'Whether the Assessing Officer was correct in initiating penalty proceedings under Section 271(1)(c) and charging interest under Section 234B of the Income Tax Act based on the addition?

RULINGS / HOLDINGS:

The Tribunal was correct in deleting the addition of Rs. 1,45,00,000/- as the assessee "has duly discharged its burden of proof" by explaining the nature of deposits received from the 23 persons, who are income tax assessees with PAN numbers and transactions routed through banking channels.The Tribunal relied on precedent that "the assessee need not prove the source of the credits and the fact that the explanation was not satisfactory would not automatically result in deeming amounts as income of the assessee."The Assessing Officer's order to treat the amounts as unexplained credits and initiate penalty proceedings was not upheld because no evidence was brought on record that the assessee had earned income during the year, and the deposits represented booking amounts related to a joint venture project.

RATIONALE:

The Court applied the legal framework under the Income Tax Act, 1961, particularly Sections 143(1), 143(2), 142(1), 148, 234B, and 271(1)(c).The decision was guided by the principle established in precedent that initial burden of proving the credits was discharged when amounts were received by account payee cheques and proper documentation was filed.The Court emphasized that mere unexplained credits do not automatically constitute income if the assessee provides a plausible explanation and documentary evidence, especially when the credits relate to genuine business transactions such as booking deposits in a joint venture.No dissent or doctrinal shift was noted; the Court affirmed the Tribunal's findings as just and proper based on the facts and evidence presented.