2025 (7) TMI 671 - AT - Income Tax

Addition u/s 68 - undisclosed income - CIT(A) deleted addition - HELD THAT - A perusal of the assessment order reveals that no submissions/detailes were filed by the assessee before the AO. In the absence of any reply to the query raised by the AO the AO made aforesaid addition. When the matter travelled before the First Appellate Authority the assessee explained with the documentary evidences that the amount of Rs. 4.50 crores was received through RTGS in accordance with the agreement signed between the assessee and PACL. As per the agreement the said amount was to be refunded by the assessee if the assessee fails to bring desired Rs. 1500 crore debt funding for PACL for completion of project in Banur Punjab. PACL also gave the assessee Rs. 3300 crores worth of assets as collateral to be kept in safe custody with the bank. CIT(A) after examining the agreement concluded that security deposits received by the assessee from PACL does not acquire the nature of income. Hence cannot be added as income of the assessee. The assessee did not have complete domain over the deposits and was under legal obligation to repay the security deposits to PACL. Unexplained cash credit - addition for the reason that the assessee allegedly fail to prove identity and creditworthiness of the lender and genuineness of the transaction - CIT(A) deleted addition - HELD THAT - CIT(A) after considering the issue has given categorical finding that the assessee had taken unsecured loan from one party. The assessee had furnished a copy of PAN ITR Balance Sheet and P L account of the said lender along with computation of income for AY 2014-15. CIT(A) observed that from Balance sheet that the said lender has Share Capital of Rs. 1, 00, 000/- and Long term borrowings of Rs. 50, 00, 000/-. The said party has further advanced loans of Rs. 50, 00, 000/-. From documentary evidences furnished by the assessee identity and the capacity of the lender and the genuineness of transaction is proved. Hence the CIT(A) deleted the addition. Disallowance of depreciation on computers - AO disallowed depreciation on car and computer as the assessee failed to place on record bills for procuring said assets - CIT(A) after considering the documents furnished by the assessee rejected assessee s claim of depreciation on car but allowed assessee claim of depreciation on computers and thus granted part relief to the assessee on this issue. We observe that the order of the CIT(A) in allowing deprecation on computers is fair and reasoned hence warrants no interference.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

- Whether the addition of Rs. 4,50,00,000/- made under section 68 of the Income Tax Act, 1961 ("the Act") as income from undisclosed sources is justified, given the assessee's claim that the amount was a security deposit against title deeds and not income.

- Whether the addition of Rs. 25,00,000/- under section 68 as unexplained cash credit is sustainable, considering the assessee's submission regarding the identity, creditworthiness, and genuineness of the lender.

- Whether the disallowance of depreciation on computers amounting to Rs. 14,941/- was correct, given the assessee's furnishing of documentary evidence supporting the claim.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition of Rs. 4,50,00,000/- as income from undisclosed sources under Section 68

Relevant Legal Framework and Precedents: Section 68 of the Act deals with unexplained cash credits, where the burden lies on the assessee to explain the nature and source of such credits. The law requires that if the assessee satisfactorily explains the source and genuineness, the addition cannot be sustained as income.

Court's Interpretation and Reasoning: The Assessing Officer (AO) initially made the addition because the assessee failed to provide any explanation or documentary evidence during assessment proceedings. However, on appeal, the Commissioner of Income Tax (Appeals) ("CIT(A)") examined the documentary evidence submitted by the assessee, including an agreement with PACL, which stated that the Rs. 4.50 crores were received as an advance against the deposit of original title deeds of land situated at Banur, Punjab. The title deeds were to be kept in safe custody with a bank, and the amount was refundable if the assessee failed to secure debt funding for PACL's project.

The CIT(A) concluded that the amount was a security deposit and did not constitute income. The assessee did not have complete dominion over the amount and was under a legal obligation to repay it, which negated the characterization of the sum as income from undisclosed sources.

Key Evidence and Findings: The agreement between the assessee and PACL, the deposit of title deeds with the bank, and the conditional nature of the advance were critical evidences. The CIT(A) relied on these to ascertain that the amount was not income but a refundable security deposit.

Application of Law to Facts: The CIT(A) applied the principle that unexplained cash credits must be treated as income only if the assessee fails to satisfactorily explain the source and nature. Since the assessee discharged this burden on appeal, the addition was rightly deleted.

Treatment of Competing Arguments: The Revenue contended that the AO's addition was justified due to lack of evidence before the AO. However, the CIT(A) and subsequently the Tribunal emphasized that the assessee's explanation and documentary evidence before the CIT(A) sufficed to discharge the burden.

Conclusions: The addition under section 68 of Rs. 4,50,00,000/- was not sustainable and was correctly deleted by the CIT(A). The Tribunal upheld this finding, dismissing the Revenue's appeal on this ground.

Issue 2: Addition of Rs. 25,00,000/- as unexplained cash credit under Section 68

Relevant Legal Framework and Precedents: Section 68 requires the assessee to prove the identity, creditworthiness, and genuineness of the lender and the transaction in case of cash credits. Documentary evidence such as PAN, Income Tax Returns, Balance Sheets, and Profit & Loss accounts of the lender are relevant to establish these aspects.

Court's Interpretation and Reasoning: The AO disallowed the claim on the ground that the assessee failed to prove the identity and creditworthiness of the lender. However, the CIT(A) examined the documents furnished by the assessee, including the lender's PAN, ITR, Balance Sheet, P&L account, and computation of income for the relevant year. The CIT(A) noted that the lender had a share capital of Rs. 1,00,000/- and long-term borrowings of Rs. 50,00,000/-, and had also advanced loans of Rs. 50,00,000/- to other parties, indicating financial capacity.

Key Evidence and Findings: The documentary evidence established the lender's identity and creditworthiness. The genuineness of the transaction was also supported by the unsecured loan agreement.

Application of Law to Facts: The CIT(A) applied the principle that once the assessee proves the identity and creditworthiness of the lender and the genuineness of the transaction, the addition under section 68 cannot be sustained.

Treatment of Competing Arguments: The Revenue failed to provide any contrary evidence to challenge the findings of the CIT(A). The Tribunal noted the absence of any material disputing the genuineness of the loan or the lender's credentials.

Conclusions: The addition of Rs. 25,00,000/- under section 68 was rightly deleted by the CIT(A), and the Tribunal upheld this decision, dismissing the Revenue's appeal on this issue.

Issue 3: Disallowance of depreciation on computers amounting to Rs. 14,941/-

Relevant Legal Framework and Precedents: Depreciation is allowable under the Income Tax Act if the asset is used for business purposes and proper evidence of purchase is furnished. Lack of documentary proof may lead to disallowance.

Court's Interpretation and Reasoning: The AO disallowed depreciation on computers and cars due to the absence of bills. The CIT(A) after examining the documents allowed depreciation on computers partially (Rs. 14,941/-) but disallowed depreciation on cars.

Key Evidence and Findings: The assessee furnished some documentary evidence supporting claim of depreciation on computers, which the CIT(A) found credible.

Application of Law to Facts: The CIT(A) applied the principle that depreciation can be allowed if the assessee provides sufficient evidence of purchase and use of the asset. Partial allowance was granted based on available evidence.

Treatment of Competing Arguments: The Revenue did not challenge the CIT(A)'s partial allowance of depreciation on computers but sought to reinstate full disallowance. The Tribunal found no reason to interfere with the reasoned order of the CIT(A).

Conclusions: The partial allowance of depreciation on computers by the CIT(A) was fair and justified. The Tribunal upheld this finding and dismissed the Revenue's appeal on this ground.

3. SIGNIFICANT HOLDINGS

- "The security deposits received by the assessee from PACL do not acquire the nature of income and hence cannot be added as income of the assessee. The assessee did not have complete domain over the deposits and was under legal obligation to repay the security deposits to PACL." This principle clarifies that amounts received as refundable security deposits are not liable to be treated as income under section 68.

- "From documentary evidences furnished by the assessee, identity and the capacity of the lender and the genuineness of transaction is proved." This affirms that adequate documentary evidence including PAN, ITR, balance sheet, and profit and loss accounts are sufficient to discharge the burden under section 68 in respect of unexplained cash credits.

- The Tribunal upheld the principle that depreciation is allowable only when supported by proper documentary evidence and that partial allowance is justified where evidence is partial but credible.

- The Tribunal concluded: "We find no infirmity in findings of the CIT(A), hence, ground no. 2 raised in appeal by the Revenue is dismissed being devoid of any merit," and similarly dismissed other grounds raised by the Revenue, thereby affirming the CIT(A)'s orders in all respects.