Case Law Details
Brief of the case
It has been held in case of Mukesh V. Prajapati Vs ITO (Ahmedabad ITAT), that the amount of cash credits shown as loan taken from various relatives , cannot be added as unexplained credit under sec 68 just on the presumption that the sources of the fund is not genuine when there is no material on record apart from these presumptions so as to doubt source/genuineness/creditworthiness of the assessee’s claim.
Facts of the Case
The assesse is partner in a firm M/s. Jay Ambe Agro Industries. The Assessing Officer noticed him to have introduced additional capital worth Rs.10,64,135/-. He sought for relevant details. The assessee gave five names in this regard having given him loans of Rs.2 lacs each in first two cases, 2.5 lacs each in third and fourth party and Rs.1.5 lac in case of the last name. The assessee stated all of them to be his relatives.
The AO summoned all of them. The case file reveals that only one of the creditors Mr. Prajapati Govindbhai Shankarbhai appeared, proved identity and confirmed the assessee’s claim. He deposed his source of income to be 35 bighas of agricultural land as well as other income from dairy products. There is no dispute that assessee is maternal nephew of the said creditor. The AO stated that this creditor failed to produce source of the fund deposited in cash. This creditor had also not received any interest from the assessee. The AO noticed that this creditors land stood pledged as a collateral security with Dena Bank. No bills of sale of agricultural produce were also forthcoming. The AO assumed that this creditor was maintaining a large family. And he did not have any capacity to lend this money in question amounting to Rs.2 lacs to the assessee. This made the AO to doubt genuineness/creditworthiness of the assessee’s claim resulting in section 68 being invoked for making the impugned addition.
It is evident from the assessment order dated 28.3.2005 that the other four creditors also files confirmation, land record documents as well as other details. The AO’s findings read that all of them are assessee’s relatives, they had made cash deposits, their land records revealed bank loans against the lands in question, they had large families to maintain and these depositors had not furnished any bills against the sale of agricultural produce. All these resulted in the impugned addition being made in the assessee’s income amounting to Rs.10,64,135/-.
Contention of the Assessee
The ld. counsel of assessee filed a paper book containing land records, confirmations of the aforesaid five creditors.
Contention of the Revenue
The Revenue strongly supports the CIT(A) order in favour of the impugned addition.
Held by CIT(A)
The ld. CIT (A) confirmed the Assessing Officer’s action.
Held by ITAT
The Hon’ble ITAT held that even the AO has not disputed that all the Five Creditors named by the assessee are assessee’s relatives. The AO doubts capacity/genuiness/creditworthiness of this creditor on an assumption that he is already having a large family to maintain, his land is already pledged as collateral security and no bills of sale of agricultural produce are forthcoming. The Hon’ble ITAT differ with this approach and observe that once the land record proves this creditor’s land to be fertile, presumption rather goes in favour of the creditor that he is sowing crops and deriving agricultural income. The land record rather specifies the nature of the crop grown as well. Merely because he is a farmer not having enough documentary evidence of having sold the produce is no ground to dispute the aforesaid land revenue document. The other presumption of collateral security is also a technical reason. The AO appears to have applied business law principles in agricultural farming intricacies.
The Hon’ble ITAT observed that merely because a farmer has pledged his land as a collateral security for obtaining same bank loan scheme does not necessarily mean that he is not having sufficient agricultural income. The third objection of large family being maintained on the same agricultural income is also without any basis. The authorities below have not done any homework or to inquire about sources of income in case of other family member; if any. Therefore, the Hon’ble ITAT held that the impugned presumptions drawn in the course of assessment and affirmed in the lower appellate proceedings are without any supportive material and accordingly held that the assessee’s maternal uncle a farmer had sufficient means to advancing cash loan of Rs.2 lacs in cash since not having a bank account. There is no material on record apart from these presumptions so as to doubt source/genuineness/creditworthiness of the assessee’s claim. Therefore, the loan of 2 lac amount was held to be explained.
Regarding the balance sum of Rs.8.5 lacs in case of other four creditors the AO himself holds them to be assessee’s relatives. Therefore, identity of the creditors is not an issue here. They have also filed confirmations along with all revenue documents. The only difference is that they have not appeared in person before the AO. As already indicated hereinabove that the assessing authority proceeded mere assumptions and presumptions. The Hon’ble ITAT accepted assessee’s arguments herein as well and ignore technical reason of personal non-appearance of these four creditors. The assessee’s explanation regarding balance cash credit of Rs.8.5 lacs was also accepted.
Thus, the assesse was granted relief in this appeal to the tune of Rs.10.5 lacs. The balance addition of unexplained cash credit amounting to Rs.14,135/- was confirmed.
